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RICHARDSON'S 


COMMERCIAL  LAW 


A  TEXT-BOOK  FOR 

SCHOOLS,  COLLEGES  AND  PRIVATE 

REFERENCE 


W.  p.  RICHARDSON,  LL.D. 

Decn  of  the  Brooklyn  Laiv  School 


rOPTRlGHT,    1900 
COPYRIGHT,    1907 


SADLER-ROWE  COMPANT 


BALTIMORE 

THE  H.  M.  ROWE  COMPANY 
Educational  Publishers 


fcDUCATION  DEffo 

"If  one  shatt  enter  upon  the  study  of  the  tatu  under  the  impres- 
sion that  the  extent  of  his  advancement  must  necessarily  bear  some 
relation  to  the  number  of  hours  consumed  in  reading,  and  the  num- 
ber of  pages  devoured,  and  shall,  in  consequence  of  that  mistaken 
impression,  hurrx  over  ground  <when  he  should  proceed  slo'wly, 
cautiously,  and  'with  much  painstaking ,  he  must  be  brought  at  last 
face  to  face  -with  the  fact  that  he  is  reading  to  little  purpose,  and 
catching  but  surface  'bieTus." — Judge  Cooley. 


"Not  so  much  to  endea'hor  to  teach  these  things  fully  to  you,  as 
to  induce  you  to  learn  them  for  yourselves."' — Judge  Curtis. 


ruEss  or 

■WILLIAMS    A     WILKI.VS    COMPANY 
HALTIMORE 


PREFACE. 


This  book  is  designed  to  give  the  student,  the  accountant  and  the  business 
man  such  a  practical  knowledge  of  the  principles  of  commercial  law  as  mil  enable 
him  to  avoid  legal  complications  in  carrying  on  any  business  enterprise,  whether 
of  a  simple  or  complex  nature. 

No  effort  has  been  made  to  present  some  of  the  subjects  as  fully  as  has 
been  attempted  in  many  law  books.  That  there  are  limitations  beyond  which 
some  subjects  should  not  be  attempted  in  the  school  room  is  fully  recognized  by 
thoughtful  teachers.  The  lay  student,  for  instance,  who  is,  in  his  own  opinion, 
sufficiently  well  versed  in  the  law  of  real  property  to  examine  the  title  for  a  piece 

of  real  estate  will  likely  discover  later  that  he  should  have  obtained  professional 
service.     "  A  man  who  is  his  own  lawyer  generally  has  a  fool  for  a  client." 

The  Author. 


A  SUPPLEMENTARY  WORD  BY  THE  PUBLISHER. 

Since  its  first  publication  in  1900,  Richardson's  Commercial  Law  has  passed 
through  one  or  more  large  editions  annually.  In  examining  the  text  notice  that 
the  law  principles  are  underscored,  which  distinguishes  them  from  the  less  important 
subject  matter  ;  that  each  principle  is  illustrated  in  a  "case"  which  has  been 
passed  upon  by  the  courts  and  that  all  purely  technical  matter  has  been  omitted. 


54 191}  7 


NOTE  TO  THE  TEACHER. 

As  each  of  the  following  subjects  is  taken  up  in  the  body  of  the  text, 
students  should  be  referred  to  the  special  statutory  laws  of  your  State  which  will 
be  found  in  the  Appendix,  beginning  on  page  177:  Statute  of  Limitations;  Stay 
of  Execution;  Exemptions,  Negotiable  Instruments  Law;  Statute  of  Frauds; 
Interest;  Rights  of  Married  Women;  Chattel  Mortgages. 

These  are  the  onl}-  important  subjects  affected  by  statutory  laws. 


TABLE  OF  CONTENTS. 


CONTRACTS 

Introduction .  7 

Analytical  Outline  of  Contracts .  9 

Offer  and  Acceptance 10 

Capacity  of  Parties 14 

Consideration 18 

Legality  of  Subject-Matter 22 

Fraudulent  Contracts 26 

Classes  of  Contracts 29 

Contracts  That  Must  Be  Written 30 

Interpretation  of  Contract 36 

Discharge  of  Contract 37 

Contracts  for  Pereonal  Service 39 

To  Prevent  the  Violation  of  Contracts 41 

Rules  Relating  to  Time  and  Damages 42 

BILLS  AND   NOTES. 

Negotiable  Instruments  Law 44 

Negotiable  and  Non-Negotiable  Paper  Distinguished 45 

Analysis  of  Drafts  and  Notes 47 

Parties  to  Commercial  Paper 48 

Requisites  of  Negotiability 51 

Additional  Stipulations 54 

Note  Wa" ving  Exemptions 55 

JudgmeTit  Note 56 

CoUateral  Note 57.  58 

Form  of  Draft  and  Note 57 

Maturity 62 

Acceptance 64 

Analysis  of  Drafts  and  Notes 67 

Endorsements 68 

Contracts  and  Liabilities  of  the  Parties 73 

Conditions  of  Drawer's  and  Endorser's  Liability 76 

Due  Notice  of  Dishonor 78 

Bona  Fide  Holder 83 

Checks 86 

Certified  Checks 89 

Certificates  of  Deposit;  Accommodation  Paper 91 

Bill  of  Lading 92 

Statute  of  Limitations;  Table  of  Limitations 93 

AGENCY. 

Analytical  Outline  of  Agency 96 

Agency  Defined;  Who  Are  Principals;  Who  Are  Agents 97 

Capacity  of  Parties ;  How  Agents  May  Be  Appointed 98 

Form  of  Power  of  Attorney 99 

Powers  of  Agents;  Principal's  Liability  to  Third  Persons 100 

Wrongful  Acts  of  Agents 102 

Principal's  Liability  to  Agents 103 

Rights  of  Principal  Against  Agent;  Rights  of  Principal  Against  Third  Persons 104 

Duties  and  Liabilities  of  Agents 106 

Liability  of  Agents  to  Third  Persons 109 

Termination  of  Agency 110 

Learal  Maxima 114 


TABLE  OF  CONTENTS 

PARTNERSHIP. 

Definition ^^^ 

How  Created 1 '[; 

Form  of  Articles  of  Co-partnership 117 

Classes  of  Partners 1 1^ 

Who  May  He  Partners;  Duties  of  Partners  to  Each  Other 121 

Authority  of  Partners 122 

Liabilitvof  Partners  to  Third  Parties 125 

Twofold  Hesponsibility  for  Debt 120 

Dissolution 127 

CORPORATIONS. 

Definition J33 

Kinds  of  Corporations J34 

Creation  of  Corporations 135 

Fonn  of  Certificate  of  Incorporation 136 

Place  of  Residence 137 

Powers  and  Liabilities  of  Corporation 138 

Rights  and  Liabilities  of  Stockholders 142 

Subscription  Obtained  by  Fraud 143 

Div-idends |44 

Dissolution 145 

FIRE  INSURANCE. 

Definition 147 

Policy  of  Insurance;  Agents 148 

Representations  and  Description;  Sale  of  Property 149 

Performance  of  Conditions;  Amount  to  be  Recovered 1 50 

Policies  in  Several  Companies 151 

REAL  PROPERTY. 

Definition 152 

Real  and  Personal  Property 153 

Landlord  and  Tenant 154 

Form  of  Lease 155 

Title    156 

Form  of  Warranty  Deed 157 

Mortgages 158 

Form  of  Mortgage -lou 

SURETY  AND  GUARANTYSHIP. 

Definition;  Consideration 161 

Guarantor's  Liability 163 

FIXTURES. 

Definition 165 

Landlord  and  Tenant 167 

Wlien  Tenant  Must  Remove  Fixtures 168 

BAILMENTS. 

Definition;  Deposit  169 

Right  to  Sell 171 

Hire  of  Things  and  Services 172 

COMMON  CARRIER. 

Definition •  ■  • 173 

General  Duties  and  Liabihties;  Cannot  Limit  Liability  for  Negligence 174 

Carriers  of  Passengers 176 


CHAPTER  I. 


INTRODUCTION. 


I.  Law. — Law  is  any  rule  of  civil  conduct  prescribed  by  competent  political 
authority,  commanding  certain  things  as  necessary  to  and  forbidding  certain 
other  things  as  inconsistent  with  the  peace  and  order  of  society.  ^Law,  in  its 
broadest  sense,  is  defined  to  be  a  rule  of  action.  ^As  such,  it  embraces  many  sub- 
jects which  do  not  relate  to  the  civil  conduct  of  individuals,  such  as  the  law  of 
gravitation,  navigation,  cause  and  effect,  etc.  ^In  its  technical  sense,  as  above 
defined,  it  is  either  international  or  municipal. 

5.  International  Law. — International  law  is  that  rule  of  civil  conduct  which 
is  prescribed  by  the  common  consent  of  civilized  nations  and  which  regulates 
their  intercourse  with  each  other.  ^As  nations  cannot  sue  or  be  sued  by  other 
nations,  it  follows  that  the  courts  have  no  jurisdiction  to  enforce  rights  or  redress 
wrongs  for  the  violation  of  international  law.  It  rests  for  its  observance  and 
enforcement  on  the  honor  of  nations. 

7.  Municipal  Law. — Municipal  law  is  any  rule  of  civil  conduct  prescribed  by 
the  supreme  power  of  a  State  or  municipality  which  regulates  the  intercourse  of 
the  State  or  municipality  with  its  people  and  of  the  people  with  each  other.  ^ 
acts  on  the  unwilling  as  well  as  the  willing.  ^Courts  have  power  to  interpret  and 
enforce  an  observance  of  its  provisions,  and  for  any  violation  either  to  punish  the 
wrongdoer  directly  or  compel  him  to  make  due  satisfaction  to  the  person  wronged. 

'"American  municipal  law  is  of  two  kinds — Common  and  Statutory. 

II.  Common  Law. — Common  law  is  any  rule  of  civil  conduct  which  origi- 
nated in  the  common  wisdom  and  experience  of  society,  in  time  became  an  estab- 
lished  custom,  and  has  finally  received  judicial  affirmance  in  the  decisions  of  the 
courts  of  last  resort.  '^It  is  expressed  in  maxims,  definitions  and  the  judgments 
of  courts.  '^It  has  been  said  that  judges  made  the  common  law.  "It  is  also 
called  unwritten  law,  because  there  is  no  record  of  its  formal  enactment, 

'^To  explain  its  formation,  we  may  suppose  a  question  to  have  arisen  in  Eng- 
land, centuries  ago,  respecting  which  the  written  law  contained  no  provision. 
Upon  presenting  this  question  to  a  judge  he  would  have  been  compelled  to  per- 


8  INTRODUCTION. 

mLt  a Avrong  tqi  j^P; unredressed  or  make  a  law  to  meet  the  emergency.  '^He  chose 
the  latter  alternative,*  and  in  making  up  his  decision  sought  light  from  everN 
•{iva'il'awlei^^onrr'e. :  .',*If  a  case  exactly  similar  had  been  before  decided,  he  would 
naturally  adopt  the  decision  then  made,  or,  if  a  similar  case  could  be  found,  he 
would  adopt  its  principles.  "If  neither  of  these  were  available,  he  would  consult 
public  policy  and  the  principles  of  natural  justice.  With  these  aids,  and  in  this 
manner,  he  would  make  his  decision. 

-"The  common  law,  thus  slowly  matured  into  a  system  in  England,  was  intro- 
duced into  this  country  by  the  first  colonists.  When  the  colonies  became  inde- 
pendent the  system  was  retained  from  choice.  -4n  all  States,  except  Louisiana, 
which  follows  the  Roman  or  Civil  Law,  the  courts  have  assumed,  or  the  legisla- 
tures have  declared,  the  written  or  unwritten  law  of  England,  as  it  existed  at  the 
time  of  the  Revolution,  1776,  to  be  the  common  law  as  far  as  it  is  applicable  to 
the  situation  of  their  people. 

22.  Statutory  Law. — Statutory  Law  is  any  rule  of  civil  conduct  established 
and  promulgated  by  the  legislative  power  of  a  State.  ^^It  supersedes  the  com- 
mon law,  and,  unless  otherwise  provided,  takes  effect  from  the  date  of  its  enact- 
ment. 

24.  Commercial  Law.  Commercial  Law  is  a  phrase  used  to  denote  those 
branches  of  the  law  which  relate  to  persons  engaged  in  commerce  and  their  rights 
to  property.  "As  the  subjects  with  which  commercial  law  has  to  deal  are  dis- 
persed throughout  the  globe,  it  results  that  this  branch  of  the  law  is  less  local  and 
more  general  in  its  character  than  any  other.  ^^Many  of  the  maxims*  and  rules 
are  of  great  antiquity  and  of  the  highest  value  and  authority. 

^^Statutory  Law  takes  precedence  of  and  nullifies  the  Common  Law. 

^*An  illustration  will  more  effectively  point  out  the  difference  between  com- 
mon and  statutory  law  and  the  precedence  which  one  takes  over  the  other  in 
applying  the  rules  of  commercial  law.  A  and  B,  husband  and  wife,  sign  a  promis- 
sory note  for  $1000.  At  Common  Law  the  wife  would  not  be  liable  on  the  note, 
because  a  married  woman  could  not  make  herself  liable  on  contracts.  All  her 
contractual  rights  were,  at  the  time  of  marriage,  merged  into  those  of  her  husband. 
The  legislatures  of  the  different  States  have,  however,  passed  acts  (Statutory 
Law)  removing  the  disability  of  coverture  and  empowering  a  married  woman  to 
make  contracts  either  jointly  with  her  husband  or  alone  on  which  she  can 
be  sued. 

^^Because  of  the  nature  of  the  transaction,  the  law  which  governs  it  is  called 
Commercial  Law,  which  is  regulated  either  by  the  common  or  statutory  law. 

♦Alternative. — A  choice  between  two  things,  so  that  if  one  is  taken  the  other  miist  be  left. 
♦Maxims. — Established  principles  or  proposition? 


CONTRACTS. 


ANALYTICAL  OUTLINE  OF  CONTRACTS. 


1.    HOW    THEY    ORIGINATE. 


Offer  and  accept- 
ance   


2.  ELEMENTS. 


H 
U 
< 
OS 
H 
Z 

o 
u 


1.    How  made. 


1.  By   words.  .  . 

2.  By    conduct . 


It; 


Incapacity  of 
parties 


Acceptance  to  be  absolute 
Revocation  of  offer 


Orally. 

Writing. 
Corres]  )ondence 
Telegraph. 
Signs. 
Silence. 


Commumcation  of 

Infancy. 

Marriage. 

Lunacy. 

Drunkenness. 

Dures?. 

Alien  be.Ugerency. 


3.    Consideration 


1.    Good 


2.    Valuable. 


1. 


.  4.    Subject  matter 


3.    InsuflBcient i  , 

1.  Gaming  and  wagering  contracts 

2.  Contracts  made  on  Sunday. 

f  1- 
2. 

3.  Against  public  policy  .  .  .  .  ]  3. 


By  correspondence. 
By  telegraph. 


What  constitutes. 
Will  support  when. 
\\  ill  not  support  when 
What  constitutes 
Need  not  be  adequate. 
Gratuitous  subscriptions. 
Forbearance  from  suit. 
Moral  obligations. 
Past  consideration. 
Impossibility. 
Legally  bound  to  do. 


Fraud I  ^• 

Classes i  2. 

3. 


What  constitutes. 

Remedies  of  defrauded  party 

Record. 

Specialty. 

Simple. 


Public  service. 
Contrary  to  good  morals. 
Freedom  of  marriage. 
Restraint  of  trade.    _ 
Pervert  court  of  justice. 


3. 
4. 

That  must  be  written \  5. 

6. 


How  interpreted. 
How  discharged  . 


1.    Promise  of  executor  or  administrator  to  pay  debts  of  decedent. 
•^      Guaranty  for  others. 

In  consideration  of  marriage. 

Sale  of  land  or  interest  therein. 

Not  to  be  performed  within  one  year.  , 

For  the  sale  of  any  goods,  wares  or  merchandise  for  the  price  ot 

66,  or  more,  unless —*  .  *  ^f  „^,^rl«■  nr 

'  1.  Buyer  receives  part  of  goods,  or, 

2  Buyer  pavs  part  of  price:   or, 

3  Buyer  gives  something  in  earnest. 


Agreement. 
Breach. 
Impossibility 
Operation  of  law. 
Performance — payment. 


1. 


For  personal  service — what  recovered 
To  prevent  the  \'iolation  of  contract. 


Cash. 

Bill  or  note. 

Tender  of. 

Legal  tender. 
.»..c,.  servant  leaves  without  excuse. 
When  rightfully  discharged. 
When  wrongfully  discharsred. 


\l 

1 .     When 


10  CONTRACTS. 

CHAPTER  II. 
CONTRACTS. 

30.  Definition. — A  contract  is  an  agreement  between  competent  parties, 
upon  a  legal  consitleration,  to  do  or  to  abstain  from  doing  some  lawful  act. 
^'This  definition  involves  the  consideration  of  four  distinct  topics,  called  the 
elements  of  a  contract,  which  are  as  follows: 

1.  Offer  and  acceptance. 

2.  Capacity  of  parties. 

3.  Consideration. 

4.  Legality  of  subject-matter. 

32.  Offer  and  Acceptance. — The  agreement  must  originate  in  an  offer  by  one 
party  and  its  acceptance  by  another.  ^^There  are  four  ways  in  which  it  may  origi- 
nate: 

'^1.  In  the  offer  of  a  promise  and  its  acceptance  by  simple  assent.  ^^This 
applies  only  to  sealed  instruments.*  ^®A  father  gives  to  his  son  his  promissory 
note,  the  only  consideration  being  his  love  and  affection  for  him.  "The  agree- 
ment is  not  enforceable  unless  the  father  affixes  his  seal,  because  in  all  simple 
contracts  there  must  be  a  valuable  consideration.  ^^But  contracts  under  seal 
need  no  consideration,  because  the  seal  takes  the  place  of  the  consideration.  ^^In 
most  States  a  mere  scroll  with  the  word  "seal"  written  in  it  constitutes  the  seal. 

*^2.  In  the  offer  of  an  act  for  a  promise.  ^*A  steps  upon  a  street  car.  That 
forms  a  contract.  ^^The  continual  passage  of  street  cars  is  a  constant  offer  by 
the  railroad  company.  ^^A  accepts  the  offer  by  stepping  upon  the  car.  ^^When 
the  conductor  collects  the  price  of  passage  he  is  simply  enforcing  the  contract. 

^^3.  In  the  offer  of  a  promise  for  an  act.  ^®A,  who  loses  his  watch,  offers 
by  advertisement  a  reward  of  $25  for  its  return.  He  offers  a  promise  for  an  act. 
*^When  B  returns  the  watch  to  A  the  act  is  done  and  the  promise  becomes  binding. 

*H.  In  the  offer  of  a  promise  for  a  promise.  *^A  offers  to  pay  B  $100  at  a 
future  day  if  B  will  perform  certain  services  for  him  before  that  time.  When  B 
makes  the  promise  asked  for  he  accepts  the  promise  offered,  and  both  parties  are 
bound. 

*Sealed  Instrument. — One  authenticated  by  receiving  the  seal  of  the  parties  thereto.  A  seal 
is  any  device  which  may  be  stamped  upon  wax  or  directly  on  the  paper,  or  it  may 
consist  of  a  simple  scroll  made  with  a  pen.  It  indicates  that  the  signing  of  the  paper 
ha8  been  done  with  greater  solemnity  and  care  than  if  the  seal  were  omitted. 


CONTRACTS.  11 

RULES  WHICH  GOVERN  OFFER  AND   ACCEPTANCE. 

50.  How  Made. — An  offer  or  its  acceptance,  or  both,  may  be  made  either  by 
words  or  by  conduct.  In  applying  this  rule  a  contract  may  arise  from  conduct  as 
well  as  by  spoken  or  written  words;  that  is,  a  contract  may  be  made,  and  not  a 
single  word  be  spoken.  Blackstone  says,  "If  I  take  up  wares  from  a  tradesman 
without  any  agreement  or  price,  the  law  concludes  that  I  contracted  to  pay  their 
real  value." 

^*A  asks  B  to  remove  the  snow  and  ice  from  the  walk  in  front  of  his  house. 
B  makes  no  reply,  but  performs  the  work.  This  is  a  valid  contract.  The  accept- 
ance is  made  by  the  conduct  of  B,  ^^A  paints  B's  house.  B  neither  directed  the 
painting  to  be  done  nor  promised  to  pay  for  it.  A  expected  that  B  would  pay, 
and  B  knew  it,  and  allowed  him  to  proceed  without  objection.  B  will  be  liable 
to  pay  for  it.  ^^The  doing  of  the  work  is  the  offer;  the  permission  to  do  it,  or  the 
acquiescence  in  its  being  done,  is  the  acceptance.  ^*But  it  must  be  remembered 
that  silence  does  not  give  consent  when  the  offer  is  not  communicated  or  made 
known  to  the  party  to  whom  it  was  intended  to  be  made.  ^^In  the  above  case, 
if  B  had  no  knowledge  that  A  was  painting  his  house  B  would  not  be  liable, 
because  at  the  time  it  was  being  done  he  had  no  power  to  accept  or  refuse  the 
services. 

56.  Communication  of  Acceptance. — Where  the  acceptance  is  not  commu- 
nicated there  can  be  no  contract.  "There  must  be  more  than  a  mere  mental 
determination  to  accept.  ^^A  offered  by  letter  to  buy  B's  horse,  adding:  "If  I 
do  not  hear  from  you  I  shall  consider  the  horse  is  mine  at  $200."  No  answer  was 
returned  to  the  letter,  and  it  was  held  that  there  was  no  contract,  though  it 
appeared  that  B  had  made  up  his  mind  to  accept  the  sum  offered. 

^®A  person  making  an  offer  may  prescribe  a  form  of  acceptance,  but  he  can- 
not so  word  his  offer  as  to  turn  the  absence  of  communication  or  reply  into  an 
acceptance.  ^"The  party  receiving  his  offer  is  not  construed  (understood)  to  have 
accepted  it  because  he  makes  no  response  to  the  offer.  ^^A,  by  messenger,  sent 
word  to  B  that  "If  I  do  not  hear  from  you  within  twenty-four  hours  I  shall  con- 
sider the  house  rented  to  you  at  $50  per  month."  B  makes  no  reply.  There  is 
no  contract. 

62.  Acceptance  to  be  Absolute. — The  acceptance  must  be  absolute  and 
identical  with  terms  of  offer.  ^^Where  the  offer  directed  that  the  answer  be  sent 
to  Chicago,  and  it  was  sent  to  Detroit,  and  there  received  by  the  offerer,  it  was 
held  that  such  an  acceptance  created  no  contract,  because  it  did  not  comply  with 
the  terms  of  offer.  ^^An  offer  once  refused  cannot  be  subsequently  accepted 
without  the  consent  of  the  offerer.  ^^A  offered  to  sell  B  his  farm  for  $6000  B 
said  he  would  give  $5000.     A  refused  this  offer;  then  B  said  he  would  give  $6006. 


12  CONTRACTS. 

A  was  MO  longer  willing  to  adhere  to  his  original  proposition.      There  was  no  con- 
tract, because  B's  offer  to  buy  at  $5000  was  a  refusal  of  A's  offer. 

66.  Unaccepted  Offer. — An  offer  unaccepted  create.s  no  rights,  and  may  be 
revoked  (withdrawn)  or  lapse  before  acceptance.  *^Even  if  an  offer  designates 
a  time  within  which  it  may  be  accepted,  it  may  nevertheless  be  revoked  by  the 
offerer  before  acceptance,  unless  there  was  a  consideration  for  keeping  the  offer 
open.  ^*The  exception  to  the  rule  is  in  cases  where  the  offer  is  made  under  seal. 
""The  seal  itself  implies  a  consideration.  ^°A  may  say  to  B:  "If  I  have  to  make 
up  my  mind  now,  I  must  refuse  to  buy  your  horse;  but  if  I  may  have  a  day  to* 
decide,  I  think  I  will  accept."  B  promises  to  give  A  the  time  requested.  Within 
a  few  hours  B  sells  the  horse  to  C.  A  has  no  remedy,  because  there  was  no  agree- 
ment to  sell,  and  no  consideration  for  keeping  the  offer  open. 

71.  Contracts  by  Correspondence. — Acceptance  turns  an  offer  into  a  con- 
tract, and  is  irrevocable.*  ^-It  is  therefore  very  important  to  ascertain  the 
moment  of  acceptance,  or  communication  of  acceptance.  "No  difficulty  arises 
when  the  contract  is  made  b}-  spoken  w^ords  or  conduct,  bvit  it  is  sometimes  a 
nice  question  to  decide  just  the  moment  of  acceptance  when  the  mail  or  telegraph 
is  used  as  the  means  of  communicating  the  intentions  of  the  parties.  A  careful 
consideration  of  the  following  rules  is  to  be  observed: 

^^1.  An  offer  is  communicated  when  the  letter  making  it  is  received  by  the 
offeree.  "It  is  a  continuing  offer  until  then,  unless  notice  of  revocation  (recall) 
has  been  received  prior  to  that  time. 

^®2.  An  acceptance  is  communicated  w'hen  the  letter  containing  it  is  posted 
or  sent.  '^The  letter  of  acceptance  may  be  lost  in  the  mail  and  never  be  received 
by  the  offerer,  but  the  parties  are  nevertheless  bound  by  a  contract,  the  existence 
of  which  is  not  affected  by  the  subsequent*  fate  of  the  letter.  ^*A  offered  by 
letter,  dated  May  1,  to  sell  wool  to  B;  the  letter  reached  B  May  3.  B  posted  a 
letter  of  acceptance  that  evening.  The  following  morning  B  received  a  letter 
from  A,  dated  May  2,  revoking  his  offer.  A  must  sell  the  wool  or  pay  damages, 
because  the  letter  of  revocation  was  not  received  until  after  the  letter  of  accep- 
tance was  mailed.  The  contract  w^as  completed  when  B  posted  his  letter  of 
acceptance.  A  must  be  considered  in  law  as  making,  during  every  instant  of  the 
time  the  letter  is  in  transit,  the  same  identical  offer  to  B. 

79.  Contracts  by  Telegraph. — The  same  principles  govern  the  communica- 
tion of  offer  and  acceptance  by  telegraph  as  bj^  correspondence.  The  acceptance 
is  communicated  when  sent.  *°The  only  question  that  calls  for  consideration  in 
a  work  of  this  kind  is  in  case  of  an  alteration  of  the  telegram,  in  regard  to  which 

♦Irrevocable. — Incapable  of  being  changed. 
♦Subsequent. — Coming  after  something  else  at  any  time. 


CONTRACTS  13 

the  decisions  are  not  in  harmony.  *^The  weight  of  authority  seems  to  be  that  if 
the  telegram  has  been  altered  the  offerer  is  not  bound,  because  he  never  gave  his 
assent  to  it,  nor  is  he  bound  by  the  telegram  as  originally  written,  because  it  was 
never  communicated.     The  same  rule  and  reason  applies  to  the  acceptance. 


CASES. 


The  student  is  expected  to  refer  to  the  rules  as  laid  down  in  the  text  for  answers  to  the 
following  cases.     Reasons  for  each  answer  must  be  given: 

1.  A  steps  into  a  ferry-boat.  The  ferryman  rows  him  to  the  opposite  shore.  Is  there  a 
contract?"' " 

2.  A  of  his  own  motion  sends  a  crate  of  strawberries  to  B,  who  consumes  them.  The  follow- 
ing day  B  refuses  payment,  because  he  had  not  ordered  them.     Can  A  recover?^" 

3.  A  wrote  to  B  as  follows:  "  Upon  agreeing  to  finish  the  fitting  up  of  offices  at  No.  10  North 
Chestnut  street  in  two  weeks  from  date,  you  can  commence  at  once."  B  began  unmediately  to 
prepare  for  the  work  by  purchasing  lumber,  etc.  The  next  week  the  proposition  was  counter- 
manded, and  B  sued  for  damages.     Can  he  succeed?^" 

4.  A  newspaper  was  regularly  sent  by  mail  to  B,  who  had  not  ordered  nor  subscribed  for  it, 
but  who  did  not  refuse  to  take  it  from  the  postoffice  or  letter-carrier,  and  did  not  direct  its  dis- 
continuance.    Is  he  liable  for  the  price  ?^° 

5.  A  jeweler,  without  authority  to  do  so,  sends  a  watch  to  B,  and  writes:  "After  giving  the 
watch  a  ten  days'  trial,  if  it  is  not  returned  I  shaU  consider  it  sold."  B  does  not  return  the  watch. 
Is  the  jeweler  entitled  to  recover  its  value ?^' 

6.  A  Telegraphed  to  B  asking  upon  what  terms  he  would  sell  a  quantity  of  coal.  B  named 
the  price.  A  replied  that  it  was  too  much.  B  then  named  by  telegram  a  lower  price,  and  went 
into  some  details.  A  replied,  "  You  can  consider  the  coal  sold,  subject  to  some  terms,  which  we 
will  arrange  next  week  when  I  arrive  in  Baltimore."  B  afterwards  refused  to  deliver  the  coal. 
Is  he  liable  for  breach  of  contract?'^ 

7.  A  offers  goods  to  B  at  a  certain  price,  and  gives  B  until  4  o'clock  in  the  afternoon  to  make 
up  his  mind.  About  2  o'clock  A  received  a  better  offer  for  the  goods  and  sold  them.  B  sued  A 
for  breach  of  contract.     Can  he  succeed  ?*° 

8.  A  says  to  B,  "At  present  I  do  not  know,  but  a  refusal  of  your  offer  for  the  sale  of  your 
oranges  for  a  certain  time  may  be  worth  something  to  me.  I  mil  give  you  $5  to  keep  the  offer 
open  until  tomorrow."     B  accepts  the  offer.     Is  A  bound  to  keep  his  offer  open?" 

9.  A  had  in  his  possession  a  horse  belonging  to  B,  and  on  September  1  wrote  B,  offering  $140 
for  the  horse.  The  letter  was  received  September  3.  B  accepted  the  offer  by  letter  mailed  on 
September  4.  On  the  same  day  A  wrote  revoking  his  offer.  The  letter  of  acceptance  and 
revocation  passed  each  other  in  the  mails.     Upon  these  facts  is  there  a  valid  contract?'" 

10.  A  had  been  negotiating  with  B  for  the  purchase  of  fifty  rifles,  but  no  agreement  had 
been  reached  when  A  telegraphed  to  B,  "Send  me  three  rifles."  The  telegram  as  delivered  read, 
"  Send  me  the  rifles,"  and  B  shipped  fifty  rifles,  and  sues  A  on  the  contract  for  their  vaiue.  Can 
^  recover?" 


14  CAPACITY  OF  PARTIES. 

CHAPTER  III 
CAPACITY  OF  PARTIES. 

82.  General  Rule. — As  to  parties  who  may  contract,  the  general  rule  is  that 
all  persons  who  act  freely  and  voluntarily,  and  are  of  sound  mind  and  of  full  age, 
are  competent  to  contract.  *^There  are,  however,  certain  classes  of  persons  who 
are  not  competent  to  contract.  This  disability  may  arise  from  (1)  infancy,  (2) 
marriage,  (3)  lunacy,  (4)  drunkenness,  (5)  duress,  (6)  alien  belligerency. 

84.  Infancy. — All  persons  are  infants  in  contemplation  of  law  until  they  have 
arrived  at  the  age  of  majority,  which  is,  in  most  of  the  States,  twenty-one  years 
for  both  sexes.  In  many  of  the  States  females  reach  their  majority  at  the  age  of 
eighteen. 

*^Until  this  period  arrives  they  are  subject  to  certain  disabilities,  in- posed 
for  their  protection,  on  the  ground  that  until  their  majority  they  have  not  suffi- 
cient maturity  of  mind  and  faculties  to  act  with  judgment  and  discretion  in  the 
practical  affairs  of  life. 

^^A  person  is  of  full  age  the  first  instant  of  the  last  day  of  the  twenty-first 
year  next  before  (preceding)  the  anniversary  of  his  birth.  If,  for  example,  a  per- 
son were  born  any  hour  on  the  first  day  of  January,  1878  (even  a  few  minutes 
before  12  o'clock  of  the  night  of  that  day),  he  would  be  of  full  age  at  the  first 
instant  of  the  31st  day  of  December,  1898,  although  nearly  forty-eight  hours 
before  he  had  actually  attained  the  full  age  of  twenty-one  years,  according  to 
days,  hours  and  minutes.  There  is  in  law  no  fraction  of  a  day — the  day  having 
commenced,  it  is  considered  as  ended. 

87.  Contracts  that  Are  Binding.  —  Contracts  of  infants  are  not  void,  but 
voidable,  and  hence  capable  of  ratification,  subject  to  the  following  exceptions, 
which  are  binding  on  the  infant: 

**(1)  Contracts  for  necessaries. 

*^(2)  Executed  contracts  of  marriage. 

^*'(3)  Contracts  for  the  maintenance  of  his  famil5^ 

®*(4)  Contracts  to  bury  any  member  of  his  family. 

92.  What  Are  Necessaries. — The  law  defines  the  necessaries  for  minors  to  be 
board,  apparel,  medical  aid  and  instruction,  suitable  to  his  circumstances  in 
life.  ®^Nothing  is  considered  necessary  if  he  has  already  been  supplied  with 
similar  articles,  and  it  is  immaterial  whether  the  person  supplying  the  infant  did 
or  did  not  know  of  the  e»*=ting  supply.     ^*Money  is  not  considered  one  of  the 


CAPACITY  OF  PARTIES.  15 

necessaries;  hence,  for  money  borrowed  by  him,  even  if  expended  in  the  purchase 
of  necessaries,  he  is  not  Hable.  ^^If  a  minor  be  maintained  by  his  parents  he  can- 
not contract  for  necessaries. 

96.  Pledging  His  Father's  Credit. — A  boy  nineteen  years  of  age  bought  a 
watch,  and  promised  the  merchant  that  his  father  would  pay  for  it.  The  mer- 
chant sold  the  watch  on  credit  of  the  boy's  father.  The  merchant  cannot  recover 
of  the  father,  because  a  boy  cannot  pledge  his  father's  credit. 

97.  Ratification  and  Voidance  of  Minors'  Contracts. — Contracts  made  be- 
tween a  minor  and  adult  are  binding  upon  the  adult,  but  voidable  at  the  option  of 
the  minor.  ^^The  minor  can  avoid  or  ratify  it  on  becoming  of  age.  ^"He  can 
sue,  but  cannot  be  sued  on  any  breach  of  contract  to  marry.  The  same  doctrine 
is  applicable  to  mercantile  transactions.  What  will  amount  to  a  ratification  has 
not  been  definitely  determined.  ^""Common  law  authorities  hold  that  if  the 
minor  at  age  neither  assents  nor  dissents  it  will  be  a  ratification. 

^"^Where  contracts  relate  to  the  sale  of  goods,  retaining  and  using  them  after 
attaining  majority  is  evidence  of  affirmance. 

"^The  question  of  avoidance  may  arise  in  four  different  classes  of  cases: 

^''^l.  A  contract  executory  on  both  sides  may  be  rescinded  or  declared  void 
at  the  will  of  the  minor,  and  no  rights  will  attach.  ^"^A  minor  contracted  with 
an  adult  for  the  purchase  of  his  horse,  to  be  delivered  in  ten  days.  At  the  time 
of  delivery  the  minor  refused  to  take  the  horse.  The  adult  has  no  remedy.  ^''^If 
the  adult  had  refused  to  deliver  it  the  minor  would  have  cause  for  an  action 
against  him. 

^"^2.  If  the  contract  has  been  executed  on  the  part  of  the  minor  only,  he 
may  disaffirm  (annul)  and  recover  the  consideration  passed  from  him.  ^"^Using 
the  same  illustration,  if  the  minor  had  paid  the  money  for  the  horse  when  the 
contract  was  made,  at  the  time  of  delivery  he  could  refuse  to  take  the  horse,  and 
also  recover  from  the  adult  the  money  paid. 

^"^3.  If  the  contract  has  been  executed  or  performed  on  the  part  of  the  adult 
only,  and  the  minor  refuses  to  execute  or  perform  his  part  of  the  contract,  and 
has  in  his  possession  any  article  or  consideration  received  under  the  contract,  the 
adult  is  entitled  to  recover  it,  but  if  the  minor  has  parted  with  the  article  or  con- 
sideration the  adult  cannot  recover  it. 


"®In  case  the  adult  had  delivered  the  horse  to  the  minor,  who  w^as  to  pay  for 
it  in  ten  days,  and  the  minor  in  the  meantime  had  sold  the  horse  and  at  the  end  ot 
ten  days  refused  payment,  the  adult  has  no  remedy.  He  could  not  compel  pay- 
ment. ""If  the  minor  had  the  horse  still  in  his  possession  the  adult  could 
recover  it. 

'"4.  If  the  contract  has  been  executed  on  both  sides,  the  minor  cannot,  when 
personal  property  is  involved,  disaffirm  or  avoid  the  contract  and  recover  the 


16  CAPACITY  OF  PARTIES. 

consideration  passed  from  him  without  restoring  the  benefits  or  consideration 
received  by  him,  and  if  the  minor  cannot  restore  the  consideration  or  benefit  the 
right  to  rescind  (annul  or  cancel)  is  lost.  "^The  minor  buys  the  horse  of  the  adult 
and  pays  for  it.  The  minor  may,  by  returning,  or  offering  to  return  it,  rescind 
the  contract  and  recover  the  purchase  money.  "^If  he  cannot  return  the  horse 
the  contract  is  binding. 

'"A  minor  may  bo  a  partner  of  an  adult,  with  the  rights  and  powers  of  a  part- 
ner, but  he  cannot  he  held  individually  liable  for  the  contracts  of  the  firm  unless 
he  affirms  them  after  attaining  his  majority.  "^When  a  minor  withdraws  from 
a  partnership  he  cannot  recover  the  capital  invested,  because  he  is  unable  lo 
return  the  consideration  which  he  has  enjoyed. 

ii6.  Wrongful  Acts. — While  an  infant  is  not  civilly  liable  on  his  contracts 
before  he  attains  his  majority,  he  is  criminally  liable  for  all  his  wrongful  acts  or 
crimes  after  he  is  fourteen  years  of  age  the  same  as  an  adult. 

117.  Married  Women. — At  common  law  husband  and  wife  became  as  one 
person.     The  wife's  existence  was  merged  into  that  of  her  husband. 

She  could,  therefore,  make  no  contracts,  except  where  her  husband  was: 

"^1.  Civilly  dead,  i.  e.,  banished,  transported  or  undergoing  penal  servitude. 

"^2.  An  alien  residing  abroad. 

^^**3.  Divorced  from  her  absolutely. 

^-'4.  A  lunatic,  and  so  found  on  inquisition. 

^"The  States,  by  statutes,  have  removed  many  of  the  common  law  disabili- 
ties, thereby  extending  the  powers  of  married  women  to  contract  the  same  as  if 
they  were  im married. 

123.  Lunatics. — The  contract  of  a  lunatic,  i.  e.,  a  person  incapable  of  under- 
standing the  nature  and  effect  of  a  particular  contract,  is  voidable;  hence  capable 
of  ratification.  *^*He  is  liable  for  necessaries  supplied  him.  ^"^If  the  contract  be 
executory  it  will  not  be  enforced  against  him.  But  a  contract  which  has  been 
completed  or  finished,  and  which  is  fair,  reasonable  and  made  with  a  part}^  who 
did  not  know  of  his  lunacy,  will  be  binding  if  the  parties  cannot  be  placed  in  the 
same  condition  as  before  the  contract  was  made  and  the  lunatic  has  had  the 
benefit  of  the  consideration.  ^-'' While  the  contract  of  a  lunatic  is  voidable  at  the 
option  of  the  lunatic,  yet  it  is  binding  on  the  other  party.  Everybody  is  pre- 
sumed to  be  of  sound  mind  and  sane  until  adjudged  or  proven  to  be  insane  by 
proper   authority. 

127.  Drunkenness. — A  contract  made  with  a  person  who  was  intoxicated  to 
such  an  extent  as  not  to  know  what  he  was  doing,  or  the  consequence  of  his  act, 
is  voidable  at  the  option  of  such  person.  *-*The  contract  may  be  ratified  when 
he  becomes  sober,  and  when  so  ratified  it  cannot  afterwards  be  avoided  on  the 
ground  that  the  contract  was  made  when  the  party  was  intoxicated. 


CAPACITY  OF  PARTIES.  17 

129.  Duress. — A  contract  obtained  by  duress  is  voidable  at  the  option  of  the 
party  upon  whom  the  duress  has  been  practiced.  ^^"Duress  is  a  personal  restraint 
or  fear  of  personal  injury,  or  of  imprisonment.  ^^*It  must  be  sufficient  in  severity 
to  overcome  the  mind  and  will  power  of  a  person  of  ordinary  firmness.  ^^^Actual 
violence  is  not  necessary  to  constitute  duress. 

^^^A  and  B  imprisoned  C  by  locking  him  up  in  a  room  until  he  signed  a  con- 
tract for  the  purchase  of  50,000  shingles.  C  can  avoid  the  contract,  but  A  and  B 
cannot  if  C  chooses  to  hold  them. 

134.  Alien  Belligerency. — In  the  United  States  an  alien  born  out  of  the 
jurisdiction  of  the  United  States,  and  who  has  not  been  naturalized.  ^^^An  ahen 
enemy  is  one  who  owes  allegiance  to  the  adverse  belligerent  when  two  countries 
are  at  war  with  each  other.  ^^^An  alien  enemy  can  make  no  contract  with  a 
citizen  of  this  country  during  hostilities,  because  he  would  thereby  be  enabled  to 
withdraw  from  the  country  its  resources  of  defense  and  to  convert  them  to  pur- 
poses injurious  to  its  interests.  Suppose  the  United  States  and  England  are  at 
war  with  each  other.  During  hostilities  A  of  Boston  contracts  to  buy  of  B  of 
London  $100,000  worth  of  crockery.  Neither  A  nor  B  can  compel  a  performance 
of  the  contract. 


CASES. 


(Give  reasons  for  answers.) 

11.  A  boy  of  nineteen  purchased  and  presented  to  his  sister  a  piano,  for  the  payment  of 
which  he  gave  his  note.     When  sued  upon  the  note  he  pleads  his  infancy.     Is  this  a  good  defense?" 

12.  An  infant  who  has  been  admitted  as  a  partner  into  a  firm  upon  payment  of  $2000,  finding 
the  partnership  unprofitable,  withdraws  from  the  firm  and  seeks  to  recover  the  $2000.  Can  he 
succeed?"^ 

13.  An  infant  bought  of  an  adult  a  bicycle  for  $120.  Paid  cash  $60,  the  balance  to  be  settled 
in  thirty  days.  After  using  it  two  weeks  the  infant  disposed  of  the  wheel  to  a  third  party,  and 
the  adult  sued  the  infant  for  the  balance.     Can  he  recover?'*'' 

14.  An  infant  borrowed  of  an  adult  $50  with  which  to  buy  food  and  clothing.  Can  the  adult 
recover  of  the  infant  the  money  loaned?** 

15.  An  infant  bought  a  horse  and  buggy  of  an  adult,  who  was  to  deliver  same  the  following 
day.  In  the  meantime  the  adult  received  a  better  offer  and  refueed  to  carry  out  his  agreement, 
whereupon  the  infant  sued  him.  Is  the  adult  liable  on  his  contract?'"*  Could  the  infant  refuse 
to  accept  the  horse,  and  not  make  himself  liable  on  contract?'"* 

16.  A  and  B,  husband  and  wife,  and  each  owning  property  in  his  and  her  own  name,  signed 
a  note  for  $1200.  Afterwards  A  lost  all  his  property.  The  wife  refusing  payment,  they  were 
sued.     Should  the  holder's  claim  be  satisfied  from  the  wife's  property ?-°     (See  introduction.) 

17.  A  held  B's  note,  which  had  been  outlawed.  While  B  was  in  a  state  of  intoxication  A 
procured  from  him  a  new  note.     Is  B  liable  on  his  new  promise?"' 


18  CONSIDERA  TION. 


CHAPTER  IV. 
CONSIDERATION. 

137.  Definition. — A  consideration  is  defined  to  be  "the  material  cause  which 
moves  a  contracting  party  to  enter  into  a  contract."  "^An  agreement  without  a 
consideration  is  utterly  void,  and  no  action  can  be  maintained  upon  it.  It  goes 
to  the  very  root  of  the  contract. 

"^There  are  two  kinds  of  considerations,  i.  e.,  good  and  valuable. 

140.  What  Constitutes  a  Good  Consideration. — A  good  consideration  is 
founded  on  natural  love,  affection  or  esteem.  "*As  between  immediate  parties, 
it  is  sufficient  to  support  an  executed*  contract,  but  it  is  not  sufficient  to  support 
an  executory*  agreement.  If  a  father  expressly  promises  his  son,  in  considera- 
tion of  natural  love  and  affection,  that  he  will  furnish  him,  as  a  gift  upon  his 
arriving  at  age,  "uith  $10,000  to  engage  in  business,  and  upon  arrival  of  his  son  at 
age  he  does  accordingly  furnish  him  with  the  promised  capital,  he  cannot  after- 
wards, upon  changing  his  mind,  recover  the  money  he  furnished.  The  contract 
in  such  a  case  is  said  to  be  executed  and  beyond  revocation  or  annulment.  If, 
when  the  son  arrives  at  age,  the  father  refuses  to  keep  his  promise,  the  son  can- 
not maintain  an  action  against  him  for  a  refusal,  because  a  good  consideration 
will  not  support  any  executory  or  future  undertaking.  "^All  executory  under- 
takings must  be  supported  by  a  valuable  consideration. 

143.  What  Constitutes  a  Valuable  Consideration.— The  test  of  a  valuable 
consideration  is  whether  or  not  a  party  to  whom  a  promise  is  made  does  some- 
thing, or  promises  to  do  something,  because  of  the  promise  or  offer  thus  made. 
If  he  does  there  is  an  agreement,  supported  by  a  valuable  consideration,  which  is 
enforceable  whether  it  is  executed  in  whole  or  in  part,  or  entirely  executory.  An 
uncle  promised  his  nephew  that  he  would  pay  the  expenses  of  the  latter's  Euro- 
pean tour,  and  the  nephew,  relying  upon  the  promise,  made  the  trip,  expending 
his  own  money.  It  was  held  that  he  was  entitled  to  recover  the  sum  from  his 
uncle,  because  the  nephew  did  that  which  he  would  not  have  done  but  for  the 
promise  of  the  uncle. 

144.  Various  Illustrations. — A  client  expressly  agrees  to  pay  his  attorney 
$500  for  certain  professional  services,  and  the  services  are  rendered  in  entire  con- 


*Executed. — Finished;  completed;  nothing  remains  to  be  done. 

♦Executory. — Unfinished;  not  completed;  something  yet  remains  to  be  done  in  the  future. 


CONSIDERATION.  19 

formity  to  the  contract.  The  client  cannot  escape  his  obligation  to  pay  the  stip- 
ulated fee  on  the  ground  that  the  services  were  not  valuable  to  him,  because  the 
attorney  did  that  which  he  would  not  have  done  but  for  the  promise  made  to  him. 
A  gave  his  promissory  note  to  B  for  $1000  in  consideration  that  B  should  name 
his  child  after  A.  The  contract  is  enforceable.  "When  a  party,"  said  the 
Court  in  this  case,  "contracts  for  the  performance  of  an  act  which  will  afford  him 
pleasure,  gratify  his  ambition  or  please  his  fancy,  his  estimate  of  value  should  be 
left  undisturbed,  unless,  indeed,  there  is  evidence  of  fraud."  An  uncle  promised 
his  nephew  $5000  if  the  latter  would  refrain  from  drinking  liquor,  using  tobacco, 
swearing  or  playing  cards  or  billiards  until  he  should  become  twenty-one  years 
of  age.  The  nephew  having  accepted  the  offer  and  performed  his  part  of  the 
agreement,  was  held  to  be  entitled  to  recover  the  promised  sum  from  his  uncle. 
He  forbore,  because  of  the  promise  made  to  him,  to  do  that  which  he  otherwise 
was  at  libertv  to  do. 


145.  Consideration  Need  Not  Be  Adequate. — The  law  does  not  inquire 
whether  the  benefit  to  the  promisor,  or  the  injury  or  detriment  to  the  promisee, 
is  equivalent  to  the  thing  to  be  done  or  received  by  the  other  party.  If  the  Courts 
should  pass  upon  the  question  of  the  adequacy  of  the  consideration  for  the  prom- 
ise they  would  be  engaged  in  making  bargains  for  the  parties,  a  proceeding  which 
would  violate  the  fundamental  principle  that  there  should  be  the  utmost  liberty 
in  the  making  of  contracts.  "The  value  of  all  things  contracted  for,"  says 
Hobbes,  "is  measured  by  the  appetite  of  the  contractors,  and,  therefore,  the  just 
value  is  that  which  they  be  contented  to  give." 

146.  Gratuitous  Subscriptions. — When  a  gratuitous  subscription  has  been 
made  it  is  binding  if  advances  have  been  made  or  liabilities  incurred  upon  the 
faith  thereof.  A  subscribes  $500  for  the  purpose  of  erecting  an  Athenaeum  in 
the  city  of  New  York,  to  be  paid  when  the  whole  amount  of  $25,000  should  have 
been  subscribed.  The  committee  having  obtained  the  required  amount,  and 
having  made  contracts,  erected  and  completed  the  building,  relying  upon  the 
good  faith  of  the  subscribers,  makes  A  liable  on  his  subscription. 

147.  Forbearance  from  Suit  as  a  Consideration. — The  abandonment  of  a 
right,  or  a  promise  to  forbear  from  exercising  it,  is  a  good  consideration  for  a 
promise,  but  it  is  not  sufficient  unless  the  person  forbearing  really  believes  he  has 
a  case;  so  that  a  forbearance  to  sue  on  an  unfounded  claim  is  not  a  good  considera- 
tion. A  had  a  bona  fide  claim  against  B,  and  put  it  into  the  hands  of  a  lawyer  for 
collection.  The  lawyer  exhibited  it  to  B  and  his  father,  C,  and  said  he  was  going 
to  bring  suit.  Thereupon  the  father  took  from  his  son  a  bill  of  sale  of  his  son's 
property.  When  A  heard  of  this,  he  said  to  B  "that  he  was  going  to  send  the 
sheriff  up  that  day;  that  he  was  not  going  to  stoo  for  the  bill  of  sale;  it  was  all  a 


20  CONSIDERATION. 

fraud."  C,  the  father,  replied,  "You  keep  quiet  and  you  shall  have  your  money; 
I  guess  I  am  worth  it."  A,  relying  upon  this  promise,  directed  his  lawyer  to  stop 
further  proceedings,  and  this  forbearance  was  held  to  be  a  sufficient  consideration 
for  the  father's  promise.  There  was  the  offer  of  a  promise  for  an  act;  the  doing 
of  the  act  is  the  acceptance  of  the  promise  and  completes  the  contract.  In  other 
words,  A  did  that  which  he  would  not  have  done  but  for  the  promise  of  the  father. 

148.  Insufficient  Considerations. — It  remains  to  point  out  certain  resem- 
blances of  consideration  which  the  Courts  have  refused  to  allow  to  support  a 
promise.     They  may  be  classified  under  four  heads: 

*"1.  Moral  obligations. 

"°2.  Past  consideration. 

^^*3.  Impossible  considerations. 

^"4.  Promise  to  do  what  a  party  is  bound  to  do. 

153.  Moral  Obligations. — A  party  may  make  a  promise,  because  he  believes 
himself  to  be  under  a  moral  obligation,  either  because  he  has  received  benefits  in 
the  past,  or  from  motives  of  piety,  delicacy  or  friendship. 

A  student  having  refused  the  payment  of  a  loan  made  him  by  the  principal 
of  the  college,  the  latter  wrote  the  student's  father,  who  replied  that  he  would  pay 
the  sum  loaned,  although  he  was  under  no  obligation  for  his  son's  support.  The 
father  is  morally,  but  not  legally,  bound  by  his  promise,  because  the  consideration 
is  past,  and  a  past  consideration  will  never  support  a  promise.  In  other  words, 
the  principal  of  the  college  did  not  do  anything  because  of  the  promise  made 
to  him.  Had  the  promise  of  the  father  been  made  before  the  money  was  loaned, 
and  the  principal  made  the  loan  because  of  said  promise,  then  the  promise  would 
have  been  enforceable  because  the  principal  did  that  which  he  would  not  have 
done  but  for  the  promise  made. 

154.  What  Is  a  Past  Consideration? — Where  a  person  receives  a  benefit, 
and,  at  the  time  such  benefit  was  received,  he  incurred  no  liability,  and  subse- 
quently he  makes  a  promise  to  pay  for  such  benefit,  the  consideration  for  such 
promise  is  said  to  be  past.  A  furnishes  B  board  and  room  gratis  for  the  winter. 
In  the  spring  B  promises  to  pay  for  the  accommodations  received.  His  promise 
is  unenforceable,  because  when  he  received  the  benefit  he  was  under  no  legal 
liability  to  pay  for  the  same. 

^^^It  is  very  essential  that  the  student  should  remember  the  following  impor- 
tant exception  to  the  above  rule,  viz. :  If  there  has  been  some  pre-existing  legal 
obligation  w^hieh  cannot  be  enforced  because  barred  by  the  Statute  of  Limitations, 
such  legal  obligation  is  a  sufficient  consideration  to  support  a  new  promise  to 
pay  such  a  debt.  A  becomes  indebted  to  B  January  1,  1891,  in  the  sum  of  S500. 
On  February  1,  1894,  B  sued  A,  but  failed  to  recover,  because  A  had  been  released 
January  1,  1894,  by  the  Statute  of  Limitations,  which  is  three  years.     CSee  table, 


CONSIDERATION.  21 

Chap.  XXVII.)  If  A,  although  not  obliged  to,  had  promised  to  pay  the  debt  at 
any  time  after  he  had  been  released,  then  the  pre-existing  legal  obligation  would 
be  sufficient  consideration  for  the  new  promise. 

156.  Impossibility. — A  promise  to  do  a  thing  impossible  in  fact  or  in  law  is 
not  a  consideration;  hence  the  promise  upon  which  it  is  founded  cannot  be 
enforced.  But  the  impossibility  must  be  natural  or  physical,  not  merely  personal 
to  the  promisor.     The  fact  that  its  performance  will  be  difficult  is  no  excuse. 

157.  Promise  to  Do  What  a  Party  Is  Bound  to  Do. — Another  form  of 
insufficiency  of  consideration  arises  where  the  alleged  consideration  is  a  promise 
to  do  or  actually  doing  what  a  man  is  already  bound  by  law  to  do  for  the  prom- 
isor. The  promisor  gets  nothing  more  than  he  is  already  entitled  to.  Therefore 
he  is  not  bound  to  fulfill  his  promise,  even  though  it  was  this  that  induced  the 
other  party  to  do  what  he  did. 

^^^Thus,  where  in  the  course  of  a  voyage  from  Philadelphia  to  West  India 
and  back  two  seamen  deserted,  and  the  captain  promised  the  rest  of  the  crew 
that  if  they  would  work  the  vessel  home  he  would  divide  the  wages  of  the  two 
deserters  among  them,  this  promise  was  held  not  to  be  binding  for  want  of  con- 
sideration. Before  they  sailed  from  Philadelphia  they  had  undertaken  to  do  all 
they  could  under  all  emergencies  that  might  arise  during  the  voyage.  The  desert- 
tion  is  to  be  considered  an  emergency  of  the  voyage.  The  sailors  promised  no 
more  than  their  contract  already  bound  them  to  do.  A  promise  to  compensate 
an  officer  in  consideration  that  he  makes  an  arrest  is  void,  because  the  counter- 
promise  of  the  officer  is  no  more  than  he  is  already  bound  to  do. 


CASES. 

(Give  reasons  for  answers.) 

18.  An  uncle  told  his  nephew  that  he  would  pay  the  latter's  expenses  of  a  pleasure  trip  to 
Europe.  The  nephew,  because  of  said  promise,  made  the  trip,  expending  his  own  money,  and 
sued  to  recover  such  sum  from  his  uncle.     Can  he  succeed?'^ 

19.  A  diamond  ring  was  sold  to  an  infant  by  A,  who  expected  B,  the  infant's  father,  on  whose 
credit  the  ring  was  sold,  to  pay  for  it.  B  had  not  authorized  his  son  to  purchase  on  his  credit, 
but  subsequently  promised  A  that  he  would  pay  for  the  ring.     Can  A  recover  from  B?'" 

20.  A  promised  to  give  $300  to  a  charitable  society  provided  a  like  sum  should  be  paid  by 
other  parties  on  or  before  a  certain  date.  Such  amount  was  duly  paid  in.  Is  A's  promise 
enforceable?'" 

21.  In  consideration  of  natural  love  and  affection  a  father  gave  to  his  son  his  promissory 
note  payable  in  one  year  for  $1000.  Payment  being  refused,  the  son  sued  his  father.  Can  he 
succeed?'" 

22.  A  promises  to  pay  B  a  debt  of  $100,  which  has  been  outlawed  by  the  Statute  of  Lim- 
itations.    Is  his  promise  enforceable?'** 


22  LEGALITY  OF  SUBJECT-MATTER. 

23.  A  gratuitously  renders  services  lor  B.  Subsequently  B,  believing  that  A  ought  to 
receive  some  compensation  for  same,  promised  to  pay  him  $200.  On  that  promise  A  sues  li. 
Can  he  recover?'" 

24.  A  sold  B  a  horse  and  buggy  worth  $300  for  $10,  to  be  deli\ered  in  ten  days.  Can  A 
compel  B  to  fulfill  his  agreement  or  pay  damages  for  breach  of  contract?'^' 

25.  A  shipped  B  t(>n  barrels  of  sugar.  The  transportation  company,  through  mistake, 
delivered  it  to  C,  wiiu  refused  to  give  it  up.  A  friend  of  C's  agreed  with  B  to  pay  the  latter  $25 
if  he  would  abandon  his  law  suit  against  C.     Is  this  promise  enforceable?'*' 


CHAPTER  V. 
LEGALITY  OF  SUBJECT-MATTER. 

159.  Meaning. — This  is  the  last  element  in  the  formation  of  contracts  which 
remains  to  be  considered.  It  is  the  legality  of  the  thing  to  be  done  or  omitted. 
Instead  of  naming  the  contracts  parties  are  permitted  to  make,  we  shall  name 
those  which  the  law  forbids  and  which,  if  made,  the  Courts  will  not  enforce. 
These  Illegal  contracts  may  be  divided  into  three  classes,  viz. : 

""1.  Gaming  and  wagering  contracts. 

^•^2.  Contracts  made  on  Sunday. 

*'^3.  Contracts  against  public  policy. 

Gaming  and  Wagering  Contracts: 

163.  1.  Gaming. — A  contract  between  two  or  more  persons  by  which  they 
agree  to  play  by  certain  rules  at  cards,  dice  or  other  contrivance,  and  that  one 
shall  be  the  loser  and  the  other  the  winner,  i.  e.,  billiards,  lottery,  backgammon^ 
cock-fighting  and  betting  thereon,  etc. 

164.  2.  Wager. — A  contract  by  which  two  or  more  parties  agree  that  a  cer- 
tain sum  of  money  or  other  thing  shall  be  paid  or  delivered  to  one  of  them  on  the 
happening  or  not  happening  of  an  uncertain  event.  If  the  contract  between  the 
parties  is  a  bona  fide  contract  to  buy  and  sell,  the  law  will  sustain  it,  but  where  it 
appears  there  is  no'real  contract  of  sale,  and  that  the  whole  transaction  is  to  be 
settled  by  the  payment  of  "differences,"  the  contract  will  be  set  aside. 

*®^At  common  law  gaming  and  wagering  contracts  were  valid,  but  statutes 
have  been  enacted  in  all  the  States  declaring  such  contracts  to  be  unlawful. 
Wagering  contracts  remained  in  force  in  England  up  to  1845,  when  Parliament 
passed  an  act  making  them  void. 

'•®A  general  summary  of  the  statutes  in  the  United  States  is  as  follows: 
r  1671    That  any  security  given  for  mone^'^  lost  by  betting  is  void. 


LEGALITY  OF  SUBJECT-MATTER.  23 

1682^  That  money  lost  at  a  gaming  table  may  be  recovered  as  a  common  debt.^ 

"^3.  That  no  money  or  other  thing  won  by  betting  can  be  sued  for. 

i704_  That  wagers  on  elections  are  prohibited,  and  money  deposited  thereon 
is  forfeited. 

171.  Contracts  Made  on  Sunday. — The  common  law  does  not  prohibit  the 
making  of  contracts  on  Sunday;  therefore  contracts  made  on  this  day  are  valid 
unless  they  are  expressly  forbidden  by  statute.  ^"The  statutes  usually  declare 
that  contracts  to  do  work  on  Sunday  which  is  not  necessary  are  void,  but  a  con- 


tract made  on  Sunday  to  do  work  on  a  week  day  is  valid.  All  contracts  for  the 
sale  of  goods,  wares  and  merchandise  on  Sunday  are  unenforceable.  ^^'When  a 
contract  has  been  performed  on  Sunday  it  is  as  valid  as  if  made  on  a  week  day.  A 
sold  B  100  boxes  oranges.  The  following  day  B  endeavored  to  have  the  sale  set 
aside  and  recover  his  money  because  the  contract  was  performed  on  Sunday.  He 
cannot  succeed. 

174.  Contracts  Against  Public  Policy. — If  the  subject-matter  of  a  contract 
relates  to  the  performance  of  an  act  which  will  be  detrimental  and  injurious  to  the 
citizens  of  a  community  and  the  public  in  general  the  contract  is  void.  And  th.s 
is  true  even  though  it  can  be  shown  that  neither  party  will  lose  or  suffer  from  its 
fulfillment.  The  question  in  this  class  of  contracts  is  not  whether  the  parties 
to  the  contract  are  injured,  but  whether  or  not  the  public  rights  are  preju- 
diced. 

^''^The  following  are  some  of  the  most  important  classes  of  contracts  which 
are  void,  because  against  public  policy: 

*^®1.  Agreements  tending  to  injure  public  service  or  good  government. 

^''2.  Agreements  which  are  contrary  to  good  morals. 

^'*3.  Agreements  which  affect  the  freedom  of  marriage, 

^'^4.  Agreements  on  restraint  of  trade. 

""5.  Agreements  which  tend  to  pervert  the  course  of  justice. 

181.  Agreements  Tending  to  Injure  Public  Service  or  Good  Government. — 
An  agreement  by  a  candidate  to  share  the  emoluments*  of  a  public  office  in 
consideration  of  aid  in  securing  his  election  is  void.  Lobbying  contracts  are 
void.  They  are  agreements  to  render  service  in  securing  legislative  action 
through  personal  influence  with  public  servants  and  through  other  objectionable 
and  sometimes  corrupt  means.  A  promised  B,  a  congressman,  $500  in  considera- 
tion that  the  latter  procure  for  the  former  the  contract  to  furnish  army  supplies 
to  the  government.  B,  according  to  the  agreement,  procured  the  coveted  con- 
tract, but  he  cannot  enforce  payment  by  A,  because  the  contract  is  void  as  against 
public  policy. 

♦Emoluments. — ^That  which  is  received  as  a  compensation  for  services,  as  salaries,  fees,  etc 


24  LEGALITY  OF  SUBJECT-MATTER. 

182.  Agreements  which  Are  Contrary  to  Good  Morals. — Where  the  under- 
taking on  either  side  is  to  do  or  permit  to  be  done  something  decidedly  immoral, 
as  prostitution,  making  indecent  books  or  pictures  and  the  like,  the  law  will  not 
aid  either  party  in  enforcing  performance.  The  immorality  must  be  of  a  marked 
character,  for  the  law  does  not  observe  a  fastidious*  delicacy.  In  general,  only 
those  contracts  are  held  void  for  immorality  which  the  precedents  have  settled  to 
be  immoral,  a  question  not  always  open  to  discussion.  If  the  contract  in  such 
eases  has  been  executed  the  Courts  will  not  rescind  it,  and,  if  executory,  will  not 
enforce  it.  A,  the  author  of  an  obscene  manuscript,  contracted  with  B,  a  pub- 
lisher, for  its  publication.  Relying  on  B's  promise,  A  made  extensive  preparations 
for  the  sale  of  the  book.  B  subsequently  refused  to  carry  out  his  part  of  the 
contract,  which  resulted  in  a  heavy  loss  to  A.  The  law  will  not  aid  A  in  seeking 
redress.     The  Courts,  in  such  cases,  will  leave  the  parties  where  they  find  them. 

183.  Agreements  which  Affect  the  Freedom  of  Marriage. — The  policy  of 
the  law  is  to  encourage  marriage  and  to  discourage  any  interference  with  freedom 
of  choice.  Hence  agreements  never  to  marry,  or  not  to  marry  within  a  given 
time,  which  is  unreasonable,  or  not  to  marry  any  other  than  a  given  person,  are 
void.  A  wager,  in  which  one  man  bets  another  that  he  would  not  marry  within 
a  certain  time,  was  held  to  be  void,  as  giving  to  one  of  the  parties  a  pecuniary 
interest  in  his  celibacy. 

"*A  promise  to  pay  or  do  anything  in  consideration  of  the  promisee's  bring- 
ing about  a  marriage  is  void.  Such  agreements  are  called  marriage  brokerage 
contracts,  and  are  well  illustrated  by  a  recent  New  York  case  decided  in  189 1,  the 
facts  of  which  were  that  a  Mrs.  Guion,  a  widow,  who,  in  her  search  for  a  husband, 
sought  the  advice  and  aid  of  a  Mr.  Wellman,  who  was  owner  and  publisher  of  a 
matrimonial  journal  called  "The  New  York  Cupid"  and  the  proprietor  of  a  mat- 
rimonial bureau  in  New  York  city.- 

^*^Mrs.  Guion  became  a  patron  of  Mr.  Wellman's  establishment  in  1886,  and 
paid  the  usual  registration  fee  of  $5.  She  was  introduced  to  thirty  or  forty 
gentlemen,  but  found  none  whom  she  was  willing  to  accept  as  a  husband,  and  in 
1887,  for  the  purpose  of  stimulating  Mr.  Wellman's  efforts  in  her  behalf,  she  paid 
him  $50,  whereupon  there  was  executed  the  following  agreement: 

"June  2,  1887. 

"Due  Mrs.  Guion  from  Mr.  Wellman  $50,  August  15,  if  at  that  time  she  is 
willing  to  give  up  all  acquaintance  with  gentlemen  who  are  introduced  in  any 
manner  by  Mr.  Wellman." 

In  August,  1887,  Mrs.  Guion,  not  finding  a  congenial  companion  among  any 
of  the  men  to  whom  she  had  been  introduced,  and  claiming  to  be  willing  to  give 

♦Fastidious. — Delicate  to  a  fault. 


LEGALITY  OF  SUBJECT-MATTER.  26 

up  all  acquaintance  with  them,  demanded  from  Mr.  Wellman  the  return  of  the 
money  paid.  It  was  held  that  she  was  entitled  to  its  return.  Courts  will  aid  a 
party  who  has  patronized  such  a  business  by  relieving  him  or  her  from  all  con- 
tracts made,  and  will  grant  a  restitution  of  any  money  paid  or  property  trans- 
ferred. 

i86.  Agreements  in  Restraint  of  Trade. — It  is  against  the  policy  of  the  law 
that  a  man  should  deprive  himself  of  exercising  his  skill  and  the  means  of  making 
a  living.  Therefore,  contracts  which  restrain  a  person  from  engaging  in  his  trade 
or  profession  for  an  unlimited  time,  or  require  him  to  abstain  from  its  exercise,  are 
void.  But  contracts  which  restrict  the  exercise  of  a  trade  or  profession  to  a  cer- 
tain locality  are  valid.  The  restraint  may  be  unlimited  as  to  time,  but  must  be\) 
limited  as  to  space.  That  is,  a  person  may  agree  never  to  engage  in  the  same 
business  in  San  Francisco  or  in  the  State  of  California,  because  he  can  go  else- 
where, but  if  he  should  agree  never  to  carry  on  business  anywhere,  then  the  agree- 
ment is  void.  The  restraint  in  all  cases  must  be  reasonable,  and  what  is  reason- 
able depends  upon  the  nature  of  the  business  to  which  the  contract  relates. 

^*^A  few  practical  cases  will  make  clearer  the  principle.  A  contract  restrain- 
ing one  of  the  parties  from  running  a  steamer  on  any  of  the  waters  of  the  State  of 
California  was  sustained.  A  contract  not  to  carry  on  a  publishing  business  within 
the  State  of  Michigan  was  upheld  as  not  being  an  unlawful  restraint  of  trade.  An 
agreement  made  by  a  manufacturer  of  matches  not  to  sell  in  any  of  the  United 
States  except  two  was  held  to  be  valid. 

i88.  Agreements  which  Tend  to  Pervert  the  Course  of  Justice. — That  is, 
contracts  the  object  of  which  is  to  stifle  prosecutions  or  to  compound  felonies  are 
held  to  be  void  upon  the  ground  that  public  interest  demands  the  punishment  of 
such  offenders,  and  that  a  man  who  knows  crimes  have  been  committed  should 
not  be  allowed  to  make  it  a  source  of  personal  profit,  and  that  the  State  relies 
upon  such  persons  to  institute  prosecutions.  A  contract  to  pay  an  attorney  a 
contingent  fee  to  procure  the  settlement  of  a  criminal  charge  is  invalid.  A  father 
whose  son  had  been  guilty  of  embezzlement  gave  a  mortgage  for  the  amount 
embezzled  in  consideration  that  the  mortgagee  would  not  prosecute  his  son.  Is 
the  mortgage  valid?  No,  because  the  consideration  upon  which  it  is  based  is  the 
doing  of  an  act  which  is  against  public  policy. 


CASES. 

(Give  reasons  for  answers.) 

26.  A  gave  his  note  to  B  for  ?1000  for  money  lost  at  cards.     B  sues  A.     Can  he  recover?"* 

27.  A  paid  B  $125  for  money  lost  at  a  game  of  cards.     Can  A  recover  the  money  from  B?"* 

28.  A  makes  a  bet  with  B  for  $1000  that  the  Boston  Baseball  Club  will  win  the  pennant. 
A  loses,  and  B  sues  to  recover  the  $1000.     Should  he  succeed?'** 


26  FRAUDULENT  CONTRACTS. 

29.  A  contracts  with  B  on  Suiuhiy  for  tlie  hitter's  services  jus  bookkeeper,  to  begin  work  on 
tlie  following  Monday.     Is  the  contract  valid?"- 

30.  A  contructetl  with  li  for  tlie  sale  of  the  former's  house  and  lot  to  the  latter.  A  refused 
to  sign  the  deed,  because  tlie  contract  was  made  on  Sunday.     Is  this  a  good  defense?'" 

31.  A  horse  whicli  .\  bouglit  of  H  on  Sunday  proved  to  be  very  unsafe.  A  returned  the 
liorse  and  sued  B  for  a  return  of  the  money.     Can  he  succeed?'" 

32.  A  promises  B  SoOU  in  consideration  that  B  procure  the  passage  through  the  city  counc- 
of  a  certain  bill.     B  was  successful  in  his  efforts  and  sues  A  on  his  promise.     Can  he  recover?'" 

33.  A  offered  B  $5000  if  the  latter  would  marry  the  former's  daughter.  B  accepted  the 
offer  and  after  marriage  sued  A  to  recover.     Can  he  succeed?"*^ 

34.  In  order  that  she  might  have  the  privilege  of  patronizing  a  "matrimonial  bureau"  A 
paid  B,  the  proprietor,  $25  as  a  registration  fee.  Subsequently  she  sued  the  proprietor  to  recover 
the  amount  she  had  paid  him.     Will  the  court  grant  a  restitution?'"^ 

35.  A,  a  physician  practicing  in  Washington,  sold  to  B,  by  written  agreement,  "  his  good 
will  of  practice  for  the  sum  of  $1000,  said  A  agreeing  to  quit  the  practice  in  said  city  in  favor  of 
B."     In  one  year  A  resumed  his  practice,  and  B  sued  for  damages.     Can  he  recover?"** 

36.  A,  the  proprietor  of  a  dyeing  and  scouring  estabHshment,  leased  the  same  to  B  for  a 
terra  of  twenty  years,  and  for  a  valuable  consideration  sold  the  custom  and  good  will  thereof, 
together  witli  the  right  to  use  the  same  name  and  style  as  theretofore:  also  agreed  that  he  would 
not  at  any  time  thereafter  conduct  in  the  city  of  Denver  the  trade  of  dyer  and  scourer.  A  subse- 
quently resumed  the  business,  and  B  sued  to  recover  damages  for  breach  of  contract.  Can  he 
succeed?'*' 

37.  A,  who  had  forged  B's  signature  to  a  check,  promised  the  latter  $100  if  he  would  not 
expose  him.     Relying  upon  said  promise,  B  kept  quiet.     Is  the  promise  enforceable?'** 


CHAPTER  VI. 
FRAUDULENT  CONTRACTS. 

189.  Definition. — "Fraud  is  a  false  representation  of  fact,  made  with  knowl- 
edge of  its  falsehood,  or  in  reckless  disregard  whether  it  be  true  or  false,  with  the 
intention  that  it  should  be  acted  upon  by  the  complaining  party,  and  actually 
inducing  him  to  act  upon  it."  We  shall  consider  these  characteristics  in 
detail : 

^*"1.  There  must  have  been  a  material  false  representation,  and  it  is  material 
if  the  contract  would  not  have  been  made  but  for  the  fraud  practiced.  Inten- 
tional misrepresentation  is  always  fraudulent.  But  there  may  be  intentional 
concealment  which  is  not  fraudulent.  The  question,  then,  is,  what  kind  of  knowl- 
edge a  contracting  party  may  lawfully  keep  to  himself.  The  Supreme  Court  of 
the  United  States  lays  down  the  following  rule:     "If  you  have  any  peculiar  or 


FRA  UDULENT  CONTRACTS.  27 

extraordinary  information  which  the  other  party,  exercising  ordinary  know  ,edge 
and  dihgence,  cannot  be  presumed  to  have,  you  are  bound  to  disclose  it,  and  the 
concealment  of  it  will  be  fraud."  While  the  law  requires  a  full  disclosure  of  all 
material  facts  necessary  to  enable  each  party  to  make  up  his  mind,  the  rule  here 
has  a  reasonable  construction,  ^^^The  law  will  not  relieve*  against  the  common 
inequalities  of  knowledge,  judgment,  skill  and  experience.  It  allows  one  party 
to  obtain  the  advantage  when  there  is  no  unfairness.  In  regard  to  the  quality 
and  value  of  articles  contracted  for,  the  rule  is  that  if  a  defect,  fault  or  imperfec- 
tion be  open  and  obvious  by  an  inspection,  there  can  be  no  ground  to  complain  of 
fraud.  But  when  the  defect  cannot  be  easily  perceived,  the  party  knowing  it  is 
l)ound  to  make  a  disclosure. 

^^^2,  The  representation  must  be  made  with  knowledge  of  its  falsehood.  It 
is  clear  that  a  person  who  makes  a  statement,  although  untrue,  is  not  guilty  of 
fraud,  unless  he  knows  it  is  false.  Thus,  where  a  telegraph  company,  by  mistake  in 
the  transmission,  caused  B  to  ship  to  England  a  large  quantity  of  barley  which  w^as 
not  required,  and  which  resulted  in  a  heavy  loss,  it  was  held  that  the  representa- 
tion not  being  false  to  the  knowledge  of  the  company,  gave  no  right  of 
action  to  B. 

^^^3.  The  representation  must  relate  to  a  fact,  and  not  a  mere  matter  of 
opinion.  A  mere  expression  of  opinion,  which  turns  out  to  be  unfounded,  will 
not  invalidate  a  contract.  A  representation  by  the  seller  that  property  is  worth 
a  given  sum  is  a  mere  expression  of  opinion,  but  a  false  statement  as  to  the  cost  of 
an  article  is  a  material  fact  and  fraudulent. 

"^4.  The  representation  must  be  made  with  the  intention  that  it  should  be 
acted  upon  by  the  injured  party.  It  is  not  necessary  that  the  statement  be  made 
directly  to  the  injured  party.  Thus,  false  statements  made  by  a  man  to  a  com- 
mercial agency  concerning  his  financial  solvency,  or  that  of  his  firm,  entitles  the 
person  who  relied  upon  them  to  all  the  remedies  of  a  defrauded  party. 

"^5.  The  other  party  must  have  relied  on  the  representation  and  have  thereby 
been  deceived.  A  bought  a  cannon  of  B.  The  cannon  had  a  defect,  which  made 
it  worthless,  and  B  had  endeavored  to  conceal  the  defect  by  inserting  a  metal 
plug.  A  had  never  inspected  the  cannon.  When  he  used  it  the  cannon  burst. 
It  was  held  that  B  had  not  committed  fraud,  because  the  attempted  fraud  had 
no  operation  on  A's  mind. 

^^^The  Court  said:  "If  the  plug,  which  it  was  said  was  put  in  to  conceal  the 
defect,  had  never  been  there  his  position  would  have  been  the  same,  for  as  he  did 
not  examine  the  gun  or  form  any  opinion  as  to  whether  it  was  sound,  its  condition 
did  not  affect  him."     Although  this  decision  has  been  severely  criticised  by  high 

♦Relieve. — To  free  from  or  set  oflf  by  contrast. 


28  FRAUDULENT  CONTRACTS. 

iiutliority.  it  is  still  the  doctrine  on  the  subject  of  fruiicl.  Deceit  which  does  not 
affect  the  conduct  of  a  party  can  hardly  create  liabilities. 

197.  Effect  and  Remedies. — A  contract  procured  by  means  of  fraud  is  not 
void,  but  voidable  at  the  option  of  the  party  upon  whom  the  fraud  was  practiced. 
The  defrauded  party  has  the  following  remedies: 

"*1.  He  may  affirm  the  contract  and  sue  for  damages,  or 

"*2.  He  may  avoid  the  contract. 

-''"If  the  person  defrauded  elects  to  avoid  the  contract,  he  must  return,  or 
offer  to  return,  what  he  received  under  it.  But  if  the  thing  received  has  perished, 
or  is  of  no  value,  or  for  any  good  reason  cannot  be  returned,  then  the  defrauded 
party  may  avoid  the  contract  without  an  ofifer  to  return.  -"4f,  after  discovery  of 
the  fraud,  the  party  does  not  rescind*  the  contract  within  a  reasonable  time,  his 
right  to  rescind  will  be  lost.  Certain  bonds  of  A  held  by  B  for  safe  keeping  were 
sold  by  B  and  the  proceeds  used  by  him.  With  knowledge  of  the  fact,  A  accepted 
and  retained  a  promissory  note  of  B's  and  others  sent  him  by  B  for  the  amount  of 
the  value  of  the  bonds  sold,  and  A  collected  the  interest  on  said  note  for  two  years. 
A  subsequently  sued  B  to  recover  the  value  of  the  said  bonds  upon  the  ground 
that  B  fraudulently  contracted  the  debt,  but  it  was  held  that  the  acceptance  of 
the  notes  under  all  the  circumstances  connected  with  it  created  a  new  contract 
between  the  parties,  and  operated  as  an  affirmance  and  ratification  of  the  fraud 
practiced  by  B. 

202.  Both  Parties  Guilty  of  Fraud. — If  both  parties  have  been  guilty  of 
fraud,  neither  can  obtain  relief  on  the  contract.  But  where  both  parties  are  not 
equally  guilty,  one  having  acted  under  circumstances  of  oppression,  imposition, 
hardship,  or  undue  influence,  so  that  his  guilt  may  be  far  less  than  his  associate, 
then  public  policy  may  require  that  relief  should  be  granted.  Thus,  where  a 
debtor,  in  order  to  induce  a  creditor  to  sign  a  deed,  by  which  the  creditor  accepts 
part  of  the  debt  due  to  him  in  satisfaction  of  the  whole,  pays  him,  without  the 
knowledge  of  the  other  creditors,  a  larger  amount  than  that  paid  to  the  rest  of  the 
creditors,  he  may  recover  back  such  extra  allowance. 


CASES. 

(Give  reasons  for  answers.) 

38.  A  falsely  represented  to  B  that  shares  in  certain  silver  mines  were  a  profitable  invest- 
ment, and  in  reply  to  inquiries  falsely  asserted  that  he  had  invested  a  large  amount  in  the  shares 
and  working  capital  of  the  said  mines,  whereupon  B,  at  the  solicitations  of  A,  but  not  until  he  (B) 
had  carefully  investigated  the  mines,  etc.,  and  elying  solely  upon  his  own  investigation  purchased 
a  large  number  of  shares,  which  proved  to  be  in  fact  valueless.     B  brought  action  to  recover  of  A 

*Rescind. — To  annul,  i.  e.,  to  make  void  or  of  no  effect. 


CLASSES  OF  CONTRACTS.  29 

$2000  which  he  had  paid  him  on  the  ground  of  A's  false  and  fraudulent  representations.     Can  he 
recover?'"' 

39.  A,  being  part  owner  of  a  vessel,  was  authorized  to  appoint  her  master.  B  made 
application  for  the  appointment.  A  agreed  to  appoint  him  in  consideration  that  he  would  take 
one-fourth  interest  in  the  vessel  at  her  cost  price.  A  fraudulently  represented  the  cost  price  of 
the  vessel.     Is  A  liable  to  B  for  the  fraud ?''^ 

40.  A  brought  an  action  to  recover  damages  alleged  to  have  been  sustained  by  means  of 
false  and  fraudulent  representations  made  to  him  by  B,  through  which  he  was  induced  to  pur- 
chase a  half  interest  in  the  business  of  manufacturing  artificial  marble.  The  facts  were  that  B 
represented  he  was  doing  a  fine  business  and  making  money;  that  he  had  a  contract  with  St. 
Vincent  Church  for  $4000,  one-half  of  which  was  profit;  also  a  large  contract  at  the  Capitol  at 
Washington,  and  a  large  contract  for  work  with  the  B.  &  O.  R.  R.  That  the  business  was  a 
complete  failure,  and  the  representations  made  and  through  which  A  was  induced  to  purchase 
were  utterly  false.     Can  he  succeed?"" 


CHAPTER  VII. 
CLASSES  OF  CONTRACTS. 

203.  Classes. — Contracts  are  divided  into  three  classes,  viz.:  1.  Contracts  of 
Record;  2.  Contracts  under  Seal;  3.  Simple  Contracts. 

204.  Contracts  of  Record. — They  are  so  called  because  when  made  are  mat- 
ters of  record  in  court.    They  are  judgments,*  recognizances*  and  supersedeases.* 

205.  Contracts  Under  Seal.— A  sealed  contract  is  technically  called  a  spe- 
cialty, deed,  bond  or  writing  obligatory.  Every  contract  may  be  under  seal  if 
the  parties  so  elect,  but  some  contracts  require  a  seal,  i.  e.,  deeds,  bonds,  etc. 

^"^The  law  relating  to  these  contracts  abounds  with  technical  and  arbitrary 
distinctions,  which  serve  no  other  purpose  than  to  confuse  the  mind.  According 
to  Blackstone,  seals  were  first  introduced  because  men  could  not  write.  Not 
being  able  to  write,  each  person  had  his  own  particular  seal,  which  he  used  in  place 
of  his  signature.  Therefore,  when  writing  became  general,  the  reason  for  using 
seals  ceased;  but  the  custom,  nevertheless,  continued.  Another  reason,  to  show 
that  the  original  purpose  and  use  of  a  seal  has  been  entirely  lost  sight  of  in  modern 
times,  is  that  we  not  only  never  affix  a  seal  without  a  signature,  but  where  a  per- 
son cannot  write  his  name,  we  write  it  for  him,  and  he  ratifies*  it.     For  what  pur- 

*Recognizance. — In  civil  cases  it  is  an  obligation  of  record  entered  into  before  some  court  of 
record  that  the  party  will  pay  the  debt,  interest  and  costs  recovered  by  the  plaintiff 
under  certain  contingencies.  *Judgment. — Decision  of  a  court. 

♦Supersedeas. — A  writ  directed  to  an  officer  that  he  stay  the  proceedings  at  law,  or  that  sus- 
pends the  powers  of  an  officer  in  certain  cases. 

♦Ratify. — To  approve  and  sanction  something  done  by  an  agent. 


ao  CONTRACTS  THAT  MUST  BE  WRITTEN. 

pose,  then,  are  seals  contimied  in  use?  The  pretense  is  that  they  add  solemnity* 
to  the  instrument.  In  Maryland  a  scrawl  after  the  name  is  all  that  is  necessary 
to  constitute  a  seal.  It  is  upon  this  theoretical  solemnity  of  a  seal  that  the  dis- 
Unction  between  sealed  and  unsealed  \\Titings  is  founded. 

Some  of  the  distinctions  are: 

*^n.  The  seal  is  said  to  estop  the  party,  that  is,  to  preclude  him  from  proving 
anything  to  the  contrary,  when  by  using  the  same  words  he  could  not  be  estopped. 

2082  The  presence  of  a  seal  is  said  to  import  or  imply  a  consideration,  when 
the  same  words  without  a  seal  would  have  no  such  effect;  hence  a  gratuitous 
promise  under  seal  is  enforceable,  but  if  not  under  seal  is  void. 

'"^S,  A  contract  under  seal  being  of  a  higher  nature,  there  cannot  be  a  simple 
contract  and  a  contract  under  seal  between  the  same  parties  on  the  same  subject, 
because  the  simple  contract  will  be  merged*  into  the  one  under  seal. 

^"4.  Right  of  action  on  simple  contracts  is  lost  if  not  exercised  within  three 
years,  while  on  sealed  instruments  it  is  not  barred  until  after  the  lapse  of  twelve 
years. 

^"5.  A  surety  upon  a  contract  under  seal  is  not  released  by  giving  time  to  the 
principal  unless  the  agreement  for  extension  be  under  seal;  whereas  a  mere  verbal 
agreement  for  extension  will  release  a  surety  upon  a  contract  not  under  seal. 
~      212.  Simple  Contracts. — All  contracts  not  under  seal,  nor  of  record,  whethei 
they  be  written  or  verbal,  are  simple  or  parol*  contracts. 


CHAPTER  VIII. 

CONTRACTS  THAT  MUST  BE  WRITTEN. 

213.  To  Prevent  Fraud  and  Perjuries. — In  the  reign  of  Charles  II.,  1676, 
Parliament  passed  an  act  the  object  of  which  was  to  prevent  the  perpetration  of 
frauds  and  perjuries  with  facility.  It  has  since  been  substantially  re-enacted  by 
the  legislatures  of  most  of  the  States.  In  some  States,  however,  it  has  never  been 
re-enacted  by  the  legislature,  but  simply  recognized  and  adopted  by  the  courts  as 
being  a  part  of  the  common  law.     In  those  States  in  which  the  statute  was  re- 

♦Solemnity. — Awe  or  reverence  inspired  by  circumstances;  a  solemn  or  formal  observance. 
*Merged. — Swallowed  up,  or  lost. 

♦Parol. — A  term  used  to  distinguish  contracts  which  are  made  verbally  or  in  writing  not  under 
seal. 


CONTRACTS  THAT  MUST  BE  WRITTEN.  31 

enacted  the  legislatures,  in  doing  so,  made  some  minor  changes,  but,  as  a  whole, 
it  remains  about  the  same  as  the  original  statute.  It  is  generally  called  "Statute 
of  Frauds."  It  provides  that  certain  classes  of  contracts  must  be  evidenced  by- 
some  memorandum  signed  by  the  party  to  be  charged.  Witnesses  to  the  agree- 
ment will  not  supply  the  want  of  the  memorandum. 


It  declares  those  contracts  to  be: 

^"1.  To  charge*  any  executor*  or  administrator*  upon  any  special  promise 
to  pay  damages  out  of  his  own  estate. 

^^^2.  To  charge  any  person  upon  any  special  promise  to  answer  for  the  debt, 
default  or  miscarriage   of  another  person. 

^^^3.  To  charge  any  person  upon  any  agreement  made  upon  consideration  of 
marriage. 

^*^4.  For  the  sale  of  lands,  tenements*  or  hereditaments,*  or  any  interest  in 
or  concerning  them. 

^^^5.  Agreements  not  to  be  performed  within  one  year  from  the  making 
thereof. 

^^•^6.  For  the  sale  of  any  goods,  wares  and  merchandise  for  the  price  of  $50 
unless: 

(1)  The  buyer  shall  accept  and  actually  receive  a  part  of  the  goods;  or, 

(2)  The  buyer  pays  a  part  of  the  price;  or, 

(3)  The  buyer  gives  something  as  an  earnest  to  bind  the  bargain. 

220.  What  Constitutes  a  Sufl&cient  Writing. — The  writing  is  required,  not 
for  the  existence  or  validity,  but  for  the  evidence  of  the  contract.  No  formality 
is  required;  a  mere  note  or  memorandum  is  sufficient.  The  memorandum  may 
consist  of  telegrams  or  various  papers  or  letters,  but  they  must  be  connected,  con- 
sistent and  complete.  A  contract  required  to  be  in  writing  cannot  be  partly  in 
writing  and  partly  oral. 

221.  To  Charge  any  Executor  or  Administrator  Upon  Any  Special  Promise 
to  Answer  Damages  Out  of  His  Own  Estate, — The  expression,  "answer  damages," 
means  to  pay  the  debts  of  the  deceased.  An  executor  or  administrator  is  not 
liable  for  the  debts  of  the  decedent,  the  person  deceased;  that  is,  he  does  not  have 
to  pay  the  debts  out  of  his  own  pocket;  his  liabilities  are  limited  by  the  assets  of 

*Charge. — To  make  liable. 

*Executor. — One  appointed  in  or  by  the  will  of  another  to  execute  the  will. 

*Adininistrator. — A  person  appointed  by  competent  authority  to  settle  the  estate  of  one  who 

left  no  will. 
*Tenement. — Any  species  of  permanent  property  that  may  be  held  so  as  to  create  a  tenancy,  as 

houses,  lands  and  rents. 
*Hereditament. — Any  species  of  property  that  may  be  inherited. 


32  CONTRACTS  THAT  MUST  BE  WRITTEN. 

the  decedent.  If,  in  order  to  save  the  credit  of  the  deceased,  or  for  any  other 
reason  he  promises  to  answer  damages  out  of  his  own  estate,  that  promise  must  be 
in  writing,  together  with  the  consideration  for  it.  "-But  a  promise  by  an  execu- 
tor to  pay  an  heir  a  sum  of  money  if  he  will  not  contest  the  will  is  not  within  the 
statute,  and,  therefore,  need  not  be  in  writing. 

223.  Any  Promise  to  Answer  for  the  Debt,  Default  or  Miscarriage  of  Another 
Person, — This  means  a  guaranty — to  be  responsible  for  a  debt  for  which  another 
person  continues  to  be  liable.  ^^^There  must  be  three  parties — the  creditor,  the 
principal  debtor,  and  his  surety  or  guarantor.  There  must  be  a  liability,  actual 
or  prospective,  of  a  third  party  for  whom  the  guarantor  undertakes  to  answer, 
ff  the  guarantor,  instead  of  making  his  liability  secondary,  makes  himself  prima- 
rily liable,  the  promise  is  not  within  the  statute,  and  need  not  be  in  writing, 
because  there  is  no  guaranty. 

"^The  liability  may  be  prospective  at  the  time  the  promise  is  made,  as  a 
promise  by  A  to  B  that  if  C  employs  B  he  (A)  will  go  surety  for  payment  of  ser- 
vices rendered.  "If  two  come  to  a  shop,  and  one  buys,  and  the  other,  to  gain  him 
credit,  promises  the  seller,  'If  he  does  not  pay  you  I  will,'  this  is  a  collateral* 
undertaking  or  guaranty,  and  is  void  without  it  is  in  writing  under  the  Statute  of 
Frauds,  But  if  he  says,  'Let  him  have  the  goods;  I  wall  be  your  paymaster,'  or 
'I  will  see  you  are  paid,'  this  is  an  undertaking  for  himself,  and  he  shall  be  under- 
stood to  be  the  buyer  and  the  other  to  act  as  but  his  servant," 

226.  Guaranty  Made  Concurrently  and  Subsequently. — One  important  dis- 
tinction is  to  be  noted  between  a  guaranty  made  concurrently  with  the  principal 
transaction  and  one  made  subsequently  as  to  the  consideraticu  for  the  guaranty. 
A  and  B  go  to  a  merchant,  and,  on  the  strength  of  A's  guaranty,  the  merchant 
sells  B  goods  amounting  to  SIOOO.  A  is  liable  on  his  guaranty;  the  consideration 
for  the  same  is  the  credit  given.  -^But  suppose  the  merchant  had  sold  the  goods 
to  B,  and  subsequently  requested  A  to  guarantee  payment;  although  A  complied 
with  the  request,  and  gave  a  written  guaranty,  he  would  not  be  liable,  because 
there  is  no  consideration.  "®It  must  be  remembered  that  the  guaranty  to  pay  a 
subsisting  debt,  like  all  other  contracts,  must  have  a  consideration,  even  though 
the  promise  be  in  writing. 

^"The  debt,  default  or  miscarriage  spoken  of  in  the  statute  will  include  liabili- 
ties arising  out  of  wrong  as  well  as  out  of  contract.  A  rode  a  horse  of  B's  without 
his  leave  and  killed  it.  C  verbally  promised  to  pay  B  a  certain  sum  in  considera- 
tion of  his  forbearing  to  sue  A.  This  promise  is  void,  because  not  in  writing. 
""Had  the  promise  been  reduced  to  writing  it  would  have  been  valid,  the  consid- 

♦Collateral. — Surety  given  in  addition  to  the  principal  promise. 


CONTRACTS  THAT  MUST  BE  WRITTEN.  33 

eration  being  A's  forbearing  to  sue,  which,  we  have  already  learned,  was  a  suffi- 
cient  consideration   to   support   an   agreement. 

231.  Agreements  Made  in  Consideration  of  Marriage. — This  does  not  mean 
the  promise  to  marry,  but  a  promise  to  pay  money  or  settle  property  on  one  of  the 
contracting  parties  when  the  marriage  actually  takes  place.  A  father  verbally 
promised,  in  consideration  of  his  daughter's  marriage,  to  give  her,  as  a  wedding 
present,  a  house  and  lot.  After  marriage  he  refused  to  carry  out  his  promise. 
The  law  will  not  compel  him  to  convey  the  property  to  his  daughter,  because  the 
contract  was  not  written. 

232.  Contracts  for  the  Sale  of  Lands,  Tenements  or  Hereditaments  or  Any 
Interest  in  or  Concerning  Them. — This  whole  subject  is  one  which  belongs  to  the 
law  of  real  property  rather  than  to  the  law  of  contracts.  It  will,  therefore,  suffice 
our  purpose  to  state  briefly  that  all  agreements  for  the  sale  or  purchase  of  real 
property  must,  in  order  to  enforce  them,  be  in  writing.  The  statute  also  requires 
that  leases  of  real  property  for  three  years  or  more  must  be  written,  but  in  some 
States  when  the  statute  was  re-enacted  the  time  for  which  oral  leases  were  valid 
was  reduced  to  one  year. 

233.  Agreements  Not  to  Be  Performed  Within  One  Year  from  the  Making 
Thereof. — While  the  rule  as  stated  is  very  clear  and  easily  understood,  yet  by 
innumerable  judicial  decisions  the  construction  placed  upon  it  has  become 
extremely  artificial.  In  construing  this  rule  the  Courts  have  held  the  following 
verbal  contracts  to  be  valid: 

2^*1.  If  the  contract  is  fully  performed  by  one  of  the  parties  within  the  year  it 
will  take  it  out  of  the  statute,  and  need  not  be  in  writing.  A,  being  a  tenant  of  B's 
under  a  ten  years'  lease,  promised  verbally  to  pay  an  additional  $20  a  year  during 
the  remainder  of  the  term  in  consideration  that  B  expend  $200  in  alterations.  A 
was  held  liable  upon  his  promise,  the  alterations  having  been  made  within 
one  year. 

^^^2.  If  the  contract  can  b}^  any  possibility  be  performed  within  one  year, 
although  the  parties  may  have  intended  that  its  operation  should  extend  through 
a  much  longer  period,  the  statute  will  not  apply;  hence  the  contract  need  not  be 
in  writing.  A  contract  to  pay  a  lawyer  for  conducting  a  law  suit  which  might 
be  terminated  within  a  year  is  not  within  the  statute,  although  the  litigation  may 
continue  for  two  years. 

^^^3.  The  statute  does  not  apply  if  the  death  of  one  party  within  the  year 
would  leave  the  contract  completely  performed  and  its  purpose  achieved.  ^^^An 
agreement  to  support  a  child  until  a  certain  age,  at  which  the  child  would  not 
arrive  for  several  years,  was  held  not  to  be  within  the  statute,  because  it  depended 
upon  the  child's  life,  and  if  the  child  should  die  within  one  year,  would  be  fully 
performed.     -^^Agreements  for  service  where  the  term  is  for  more  than  one  year 


34  CONTRACTS  THAT  MUST  BE  WRITTEN. 

or  is  to  begin  at  a  future  time,  are  within  the  statute,  and  must  be  in  writing. 
Thus  an  agreement  to  employ  a  boy  five  years  and  pay  his  father  certain  sums 
at  stated  periods  during  that  time  is  within  the  statute;  hence  to  enforce  the 
agreement  it  must  be  reduced  to  writing.  Although  bj^  the  death  of  the  boy  the 
services  would  cease  and  the  contract  determined,*  it  would  certainly  not  be 
completely  performed.  -^''Agreements  not  to  carry  on  a  certain  business  at  a 
particular  place  need  not  be  in  writing,  because,  being  only  a  personal  engagement, 
and  imposing  no  duties  upon  his  legal  representatives,  it  would  be  fully  performed 
if  the  party  died  within  the  year. 

240.  For  the  Sale  of  Any  Goods,  "Wares  or  Merchandise  for  the  Price  of  Fifty 
Dollars  and  Upwards. — But  if  any  one  of  the  following  circumstances  occurs  at 
the  time  of  the  sale  it  need  not  be  in  writing: 

1.  Acceptance  and  receipt  of  part  of  the  goods. 

2.  Payment  of  part  of  the  price. 

3.  Giving  something  as  an  earnest  to  bind  the  bargain. 
In  some  States  the  price  is  $30  and  upwards;  in  others  $50. 

241.  Accept  and  Receive  Part  of  the  Goods  means  that  the  buyer  must  appro- 
priate to  himself  a  part  or  the  whole  of  the  goods  in  such  a  way  as  to  destroy 
any  further  claim  to  them  by  the  seller.  It  does  not  mean  that  in  all  cases  the 
buyer  is  actually  to  handle  the  things  bought.  Where  the  articles  are  heavy  and 
bulky  it  is  not  necessary  that  they  be  manually  delivered.  It  is  only  required  in 
such  cases  that  the  purchaser  should  have  complete  and  absolute  control  and 
authority  over  the  thing  purchased.  If  the  buyer  receives  and  takes  with  him 
a  sample,  it  is  sufficient  to  satisfy  the  statute.  But  it  must  be  understood  by 
both  parties  that  the  sample  was  a  part  of  the  goods  purchased. 

242.  Payment  of  Part  of  the  Price  means  that  there  should  be  an  actual  pay- 
ment of  a  portion  of  the  purchase  price. 

243.  Giving  Something  in  Earnest.— The  effect  of  an  earnest  is  to  bind  the 
goods  sold.  Upon  payment  of  the  whole  price  the  buyer  is  entitled  to  them. 
But  if  he  does  not  within  the  time  agreed  pay  for  and  take  the  goods  the  vendor 
may  resell  the  same,  also  retain  the  earnest  money. 

244.  What  Are  Goods,  Wares  and  Merchandise? — In  some  cases  what  are 
goods,  wares  and  iiiercliandise  under  this  clause  is  a  question  of  much  difficulty, 
and  the  decisions  of  the  Courts  are  not  in  harmony. 

-*^A  contract  for  work  and  labor  is  not  within  the  s+atute,  but  where  one 
agrees  to  manufacture  an  article  for  another  it  is  often  a  nice  question  to  deter- 
mine whether  the  contract  is  for  work,  labor  and  materials,  or  for  goods,  wares 
and  merchandise. 


•Determined. — Urought  to  a  conclusio'*. 


CONTRACTS  THAT  MUST  BE  WRITTEN.  35 

^^"The  weight  of  authority  is  that  where  worl<;  and  labor  is  to  be  bestowed  by 
the  seller  upon  the  thing  sold  before  delivery  the  contract  is  for  work  and  labor, 
therefore  not  within  the  statute,  and  need  not  be  written. 

^^^A  sold  wheat  in  the  stack  to  B,  which  was  to  be  threshed  by  A,  the  seller 
before  delivery.  The  contract,  being  partly  for  labor,  is  not  within  the  statute 
But  if  the  buyer  is  to  perform  the  labor,  then  it  is  within  the  statute.  Thus,  ii 
B,  the  buyer,  was  to  thresh  the  wheat,  the  contract  must  be  written. 

^**Shares  of  stocks,  bonds  and  promissory  notes  are  goods  within  the  mean 
ing  of  this  statute.  An  auction  sale  is  also  within  the  statute.  The  auctionee 
is  the  agent  of  both  parties  to  sign  the  memorandum. 


CASES. 


(Give  reasons  for  answers.) 

41.  A  delivers  a  vessel  at  B's  dock-yard  for  repairs.  The  bill  for  the  work  is  $125.  A 
wants  the  boat,  but  B  refuses  to  let  him  have  it  until  his  claim  is  paid.  C  verbally  promises  to 
become  responsible  for  the  payment,  whereupon  B  delivers  the  boat  to  A.  B  sues  C  on  his 
promise.     Can  he  recover ?^^^ 

42.  A  and  B  go  into  a  store.  A  directs  the  merchant  to  let  B  have  goods  to  the  amount 
of  $100.     A  verbally  promises  to  pay  for  them.     Is  his  promise  enforceable ?^^^ 

43.  A  bought  of  B  a  carriage  for  $150.  When  the  carriage  was  delivered  A  refused  to  accept 
it,  because  it  was  not  the  one  he  had  bought.  B  proved  beyond  a  doubt  that  it  was  the  one  A 
had  purchased,  and  sued  him  to  recover.     Should  he  succeed?^" 

44.  A  made  an  oral  agreement  with  B  that  the  latter  should  receive  employment  in  the 
former's  store  for  two  years.     Is  the  contract  enforceable?^^' 

45.  A  made  an  oral  agreement  with  B  that  he  would  sell  to  the  latter  100  tons  of  coal  at 
$5  per  ton,  provided  the  order  for  same  was  received  within  fifteen  months.  At  the  end  of 
thirteen  months  B  put  in  his  order.     Is  A  obliged  to  deliver  the  coal?^^^ 

46.  A  contracted  with  B  for  the  sale  of  his  farm  to  the  latter.  B  paid  $100  to  bind  the 
l)argain.  When  the  time  came  for  signing  the  deed  A  refused,  and  B  sued  to  compel  a  convey- 
ance.    Should  he  succeed  ?^^^ 

47.  A  sold  goods  to  B.  Subsequently  A,  learning  of  B's  bad  credit,  requested  C  to  go  B's 
surety.  Whereupon  C  gave  a  written  guarantee.  A  having  failed  to  collect  of  B,  sues  C.  Can 
he  recover ?^^''  ^-' 

48.  A  hired  a  horse  and  buggy  of  B,,and,  by  his  reckless  driving,  the  carriage  was  upset 
and  damaged  to  the  extent  of  $50.  C  gave  a  written  guarantee  to  B  to  answer  for  damages 
sustained  if  he  would  not  prosecute  A.     Is  C's  promise  enforceable?"' 

49.  A  made  an  oral  agreement  with  B  not  to  carry  on  basiness  in  Wasliington  for  twenty- 
five  years.     Is  the  agreement  binding?^'" 

50.  A  sold  to  B  1000  shocks  of  corn,  which  were  to  be  hu.si<ed  by  A  before  delivery.  The 
agreement  was  not  reduced  to  writing.  Can  A  refuse  to  carry  out  the  contract  .-ind  not  m:ikc 
himself  liable  for  a  breach  of  same?-*' 


36  INTERPRETATION  OF  CONTRACT. 


(^HAPTER  IX. 
INTERPRETATION  OF  CONTRACT. 

249.  How  to  Determine  the  Intention  of  Parties. — If  a  dispute  should  arise 
over  an  oral*  contract,  it  is  the  province*  of  a  jury  to  determine  what  the  parties 
said  and  the  terms  agreed  upon.  ^^"When  a  man  is  proved  to  have  made  a  con- 
tract by  word  of  mouth  upon  certain  terms  he  cannot  be  permitted  to  allege  that 
he  did  not  mean  what  he  said. 

^^'When  a  contract  has  been  reduced  to  writing  the  parties  thereto  cannot 
add  to  or  vary  the  terms  of  the  contract.  The  contract  cannot  be  partly  oral 
and  partly  written.  All  previous  or  contemporaneous*  negotiations  are  merged 
into  the  writing,  which  is  considered  as  furnishing  the  best  evidence  of  the 
intention  of  the  parties.  -"One  of  the  exceptions  to  the  above  rule  which  is  im- 
portant for  the  student  to  remember  is  that  evidence  is  admissible  of  the  usage 
or  custom  of  a  trade  or  locality  to  add  to  or  explain  a  term  of  a  contract  or  to 
attach  a  special  meaning  to  the  words. 

253.  Usage.* — The  parties  are  presumed  to  contract  with  reference  to  the 
usage,  and  it  is  as  obligatory  as  if  incorporated  in  the  contract.  It  is  for  the  jury 
to  determine  whether  the  parties  contract  with  reference  to  it  or  not. 

^^*A  valid  usage  must  possess  the  following  characteristics: 

1.  It  must  be  general  and  uniform. 

2.  It  must  not  be  repugnant*  to  or  inconsistent  with  the  terms  of  the  contract. 

3.  The  usage  must  not  contravene*  the  general  rules  of  law. 

4.  It  must  be  reasonable. 

255.  Validity  of  Contracts. — The  general  rule  is  that  a  contract  that  is  valid 
where  made  is  valid  everywhere,  and  if  void  where  made  is  void  everywhere. 
"^As  to  the  interpretation  of  a  contract,  the  law  of  the  place  where  the  contract 
is  to  be  performed  governs,  and  not  the  law  of  the  place  where  it  is  made,  even 
though  if  it  were  made  some  place  else  it  would  be  valid.  A  and  B,  residing  in 
Buffalo,  where  it  is  the  custom  for  tailors  to  work  nine  hours  a  day,  make  an 
agreement  whereby  A  employs  B  to  go  to  Boston  to  work,  where  it  is  the  custom 
for  tailors  to  work  but  eight  hours  a  day.  The  contract  contained  no  conditions 
as  to  how  many  hours  B  should  work  a  day.     The  time  in  Boston  will  prevail. 

*Oral. — Spoken,  not  written.  *Contemporaneons. — At  the  same  time. 

*Usage. — A  long-continued  practice.  *Contravene. — To  come  in  conflict  with. 

*Province. — Province  of  a  jury  is  its  business  or  duty. 
''Repugnant. — Opposed,  contrary,  inconsistent. 


DISCHARGE  OF  CONTRACT,  37 

CHAPTER  X. 
DISCHARGE  OF  CONTRACT. 

257.  Considered. — We  have  dealt  with  the  elements  of  a  contract,  and  with 
its  interpretation.  We  shall  now  consider  how  the  contractual  tie  may  be  loosed 
and  the  parties  wholly  freed  from  their  rights  and  liabilities  under  the  contract. 
The  modes  in  which  a  contract  may  be  discharged  are: 

258.  Agreement. — The  contract  may  be  discharged  by  the  same  process 
which  created  it — mutual  agreement.  A  sued  B  for  breach  of  promise  of  mar- 
riage. B  proved  that  before  the  breach  he  and  A  had  mutually  agreed  to  annul 
the  contract;  therefore  B  was  released  from  all  obligations. 

259.  Breach. — The  contract  may  be  broken.  If  so,  a  new  obligation  con- 
nects the  parties,  that  is,  a  right  of  action  for  damages  possessed  by  one  against 
the  other.  A  engaged  B,  January  1,  1893,  to  enter  into  his  services  as  courier 
and  to  accompany  him  upon  a  tour.  The  employment  was  to  commence  March 
1.  On  February  1  A  wrote  B  that  he  should  not  require  his  services.  The  con- 
tract is  broken,  and  B  can  sue  A  at  once  for  damages. 

260.  Impossibility. — The  performance  of  the  contract  may  become  impossible 
by  reason  of  certain  circumstances  which  are  held  to  exonerate  the  parties  from 
their  respective  obligations.  A  sold  B  an  article  which,  at  the  time,  had  ceased 
to  exist.     Such  a  contract  is  also  void  upon  the  ground  of  mistake. 

261.  Operation  of  Law. — The  contract  may  be  discharged  by  the  operation  of 
rules  of  law  upon  certain  sets  of  circumstances.  A  gave  B  his  note  for  $400.  B 
altered  the  note  so  as  to  read  $1400.  A  is  discharged  on  the  note  because  of  the 
alteration. 

262.  Performance. — This  is  the  most  usual  mode  of  discharging  a  contract. 
Whether  what  is  done  amounts  to  a  discharge  depends  upon  the  construction  of 
the  contract.  If  the  promisee  has  received  that  which  he  had  a  right  to  demand 
the  contract  is  discharged.  If  the  obligation  of  the  promisor  is  the  payment  of 
money,  then  the  debt  is  discharged  by  such  payment. 

263.  Payment  by  Promissory  Note. — When  a  note  is  given  for  a  pre-existing 
debt  it  does  not  extinguish  the  debt  unless  it  is  so  agreed  by  the  parties.  It 
simply  suspends  action  until  the  maturity  of  the  note.  Suppose  A  owes  B  on 
account  $100.  B  receives  A's  note  at  ninety  days,  without  grace,  in  payment  of 
the  debt.     The  original  debt  is  not  extinguished,  but  B's  right  to  sue  on  it,  should 


ig  blSCILMiUE  OF  CONTRACT. 

the  note  be  dishonored,  tliat  is,  not  paid  at  maturity,  is  postponed  for  ninety 
days.  -"^In  the  payment  of  debts  by  commercial  paper  it  is  usually  a  question 
of  intention  whether  the  parties  intended  it  to  act  as  a  discharge  of  the  original 
debt.  -®*It  is,  however,  well  settled  that  when  one  buys  goods  and  gives  in 
payment  another's  note,  endorsed  ivithout  recourse,*  it  will  act  as  a  final  pay- 
ment and  discharge  of  all  liability  on  the  part  of  the  buyer. 

266.  Tender  of  Payment. — A  tender  is  an  attempt  to  do  what  a  party  prom- 
ised, but  is  prevented  from  so  doing  by  the  acts  of  the  other  party,  ^®^When  the 
contract  is  for  the  payment  of  money,  in  order  to  constitute  a  legal  tender  the 
full  amount  must  be  actually  offered.  ^**When  a  tender  is  made  and  refused, 
interest  on  the  debt  ceases  to  run,  and  the  costs,  in  case  of  a  law  suit,  are  thrown 
upon  the  party  refusing  to  accept  the  money.  ^®*But  the  student  must  remember 
that  a  refusal  by  the  creditor  to  accept  the  money  tendered  does  not  discharge  the 
debt.  A,  believing  his  indebtedness  to  B  is  $100,  tenders  him  that  amount.  B 
claims  the  amount  due  him  to  be  $150;  therefore  refuses  to  accept  the  $100  in 
payment  of  the  debt.  B  sues  A  for  $150,  and  gets  a  verdict  for  only  $100.  A 
will  be  released  from  paying  interest  from  the  time  of  tender,  and  the  costs  must 
be  paid  by  B.  But  had  the  verdict  been  for  $150,  then  interest  would  continue 
to  run  and  the  costs  thrown  on  A,  because  his  tender  was  insufficient,  it  not  being 
enough  to  cover  B's  claim. 

270.  Legal  Tender. — The  debtor  must  offer  to  the  creditor  such  money  as 
Congress  has  declared  to  be  legal  tender.  It  alone  has  the  power  to  say  what 
that  form  of  money  shall  be. 

"'Under  the  present  provisions  of  the  United  States  statutes,  the  debtor  may 
offer  his  creditor  any  of  the  following  moneys  which  Congress  has,  from  time  to 
time,  declared  to  be  legal  tender: 

1.  Gold  coins  in  any  amount. 

2.  Silver  dollars  in  any  amount. 

3.  Fractional  silver  coins  in  amounts  not  exceeding  $10. 

4.  Minor  coins  (coppers  and  nickels)  in  amounts  not  exceeding  twenty-five 
cents. 

5.  Treasury  notes  in  any  amount  for  all  debts,  public  and  private,  and  are 
also  receivable  for  customs,  taxes  and  all  public  dues. 

272.  Gold  and  Silver  Certificates. — In  1878  Congress  provided  for  the  issu- 
ance of  gold  and  silver  certificates,  which  may  be  obtained  in  exchange  for  gold 
and  silver  coin  deposited  with  the  Secretary  of  the  Treasury.  It  is  quite  gener- 
ally supposed  that  the  certificates  are  a  legal  tender.     In  fact,  it  is  so  stated  in 

♦Without  Recourse. — An  endorsement  "without  recourse"  releases  the  endorser  from  liability. 


CONTRACTS  FOR  PERSONAL  SERVICE.  39 

some  few  text-books  on  commercial  law,  but  such  suppositions  and  statements 
are  erroneous.  The  statute  provides  that  they  are  legal  tender  for  customs,  taxes 
and  all  public  dues,  but  not  for  private  debts.  Like  national  bank  bills,  they 
circulate  as  freely  as  if  they  were  legal  tender,  and  from  a  practical  view  they  are 
such,  because  the  gold  and  silver  which  they  represent  may  be  obtained  on 
presentation  of  the  certificates  to  the  treasury  or  any  sub-treasury. 

273.  National  Bank  Bills.— Bank  bills  are  a  good  tender,  if  they  are  not 
objected  to  by  the  creditor.  But  they  are  in  no  sense  a  legal  tender.  Most  per- 
sons are,  however,  very  willing  to  accept  them.  A,  being  indebted  to  B  in  the 
sum  of  $100,  offers  him  the  amount  in  national  bank  bills.  B  may  decline  to 
accept  them,  and  demand  payment  in  gold,  silver  or  treasury  notes. 

CASES. 

(Give  reasons  for  answers.) 

51.  A  contracted  with  B  to  build  a  stone  wall  according  to  certain  drawings  and  specifica- 
tions. The  price  was  stipulated  to  be  "  the  sum  of  four  dollars  and  fifty  cents  per  perch  com- 
plete." In  an  action  brought  to  recover  for  said  work  evidence  was  offered  that  there  existed  a 
custom  among  stonemasons  and  builders  known  as  "masons'  measure,"  whereby  stonemasons 
are  entitled  to  recover  not  only  the  actual  solid  contents  of  a  wall  or  structure  built,  but  also  for 
openings,  such  as  windows,  etc.,  in  the  same  manner  as  if  the  same  were  solid  masonry.  Should 
B  be  entitled  to  recover  for  his  work  according  to  "  masons'  measure?"^^^ 

52.  A  bought  goods  of  B  and  gave  in  payment  a  check.  Is  A  discharged  from  further 
liabihty?2«3, 2" 

53.  A  covenanted  to  dig  from  certain  premises  not  less  than  1000  tons  of  potter's  clay 
annually.  It  was  found  that  there  was  not  so  much  as  1000  tons  of  clay  under  the  land.  Is 
he  liable  for  breach  of  contract ?^^" 

54.  A  gave  his  note  to  B  in  settlement  of  a  debt.     Is  the  debt  discharged ?^*^ 

55.  A  bought  goods  of  B  amounting  to  $450,  and  gave  in  payment  C's  note  for  $450, 
endorsed,  "without  recourse."  B  was  unable  to  collect  on  the  note;  hence  he  sued  A  for  the 
value  of  the  goods  delivered.     Can  he  recover?^"* 

56.  A,  owing  B  $1,  tendered  in  payment  one  fifty-cent  piece  and  the  balance  in  five  and  one 
cent  pieces,  which  B  refused  to  accept.     What  are  B's  rights?"' 


CHAPTER  XI. 

CONTRACTS  FOR   PERSONAL   SERVICE, 

274.  Recompense. — When  a  servant  leaves  his  employment  without  excuse, 
before  the  end  of  his  term  of  service,  he  can  recover  nothing  for  what  he  has  doiie. 
^'^If  the  completion  of  the  services  was  prevented  by  the  servant's  illness  or  death, 


40  CONTRACTS  FOR  PERSONAL  SERVICE. 

\w  or  Ids  administrator  is  entitled  to  recover  for  part  performance.  If  A  engages 
B  to  work  for  him  for  one  year  at  a  stipulated  price,  B  must  perform  the  entire 
year's  work  before  he  can  collect  anything  of  A.  If  A  should  engage  B  to  work 
a  year  at  a  specified  price  per  month,  and  to  be  paid  monthly,  B  could  sue  and 
recover  his  salary  at  the  end  of  each  month.  But  if  B  quits  A's  employment 
without  just  cause  before  the  end  of  the  year,  A  could  keep  out  of  B's  wages  such 
damages  as  were  the  result  of  the  breach  of  contract. 

276.  Servant  Discharged. — If  the  servant  be  rightfully  discharged,  he  may 
recover  his  proportionate  wages  to  date.  A  employed  B  for  one  year.  At  the 
expiration  of  six  months  B  was  rightfully  discharged.  A  must  pay  B  six  months' 
salary.  -^^If  the  servant  be  wrongfully  discharged,  he  has  a  right  to  recover  from 
his  employer  the  whole  amount  of  salary  for  the  specified  period,  less  such  sum 
as  it  is  shown  he  did  earn,  or  could,  by  the  exercise  of  due  diligence,  have  earned 
in  some  other  employment  of  the  same  general  kind  since  his  dismissal.  ""When 
the  contract  is  made  in  the  first  instance  for  a  year,  or  other  definite  period,  and 
the  service  continues  afterwards,  the  presumption  is  that  the  same  contract  pre- 
vails for  the  next  year  or  other  period. 

CASES. 

(Give  reasons  for  answers.) 

57.  A  employed  B  as  a  clerk  for  one  year  at  a  salary  of  SI 200,  payable  at  the  end  of  the 
year.  B  died  after  serving  six  months.  Can  his  administrator  recover  proportionate  com- 
pensation?^" 

58.  A  was  employed  as  a  teacher  for  six  months,  and  was  wrongfully  discharged  after  two 
months'  service,  at  which  time  one  month's  salary  was  due,  which  A  sued  for  and  recovered. 
Has  A  exhausted  his  rights?     If  not,  what  remedy  has  he?"' 

59.  A  engaged  B  for  one  year  at  $1200.  At  the  expiration  of  that  period  there  was  no  new 
contract,  but  the  employment  continued  as  under  the  original  contract  for  seven  months,  when, 
after  receiving  seven  months'  salary,  B  was  wrongfully  discharged.  Has  B  a  cause  of  action  for 
damages  against  A  for  breach  of  contract?"^ 

60.  A  contracted  with  B  for  the  latter's  services  for  five  years  at  $2000  a  year.  It  was 
agreed  that  if  B  got  drunk  and  neglected  his  work  A  might  discharge  him.  After  B  had  been 
in  A's  employment  about  two  years  he  became  intoxicated  and  neglected  his  work,  and  was 
consequently  discharged,     Can  he  recover  his  salary  up  to  the  time  he  was  discharged?^'* 


TO  PREVENT  THE  VIOLATION  OF  CONTRACTS  41 


CHAPTER  XII. 


TO  PREVENT  THE  VIOLATION  OF  CONTRACTS. 


279.  Specific  Performance  of  Contract. — A  court  of  equity  has  jurisdiction* 
to  enforce  a  promise  to  do  a  thing  by  issuing  a  decree  for  specific  performance* 
and  to  enforce  a  promise  not  to  do  a  particular  act  by  injunction.*  -*°These  rem- 
edies may  be  had  only  when  the  common  law  remedy  of  an  action  for  damages 
for  breach  of  contract  would  be  inadequate  to  the  loss  sustained  "^^Contracts. 
for  the  sale  of  land  may  be  specifically  enforced,  because  money  that  might  be 
recovered  in  actions  for  damages  for  breach  of  such  a  contract  is  not  considered 
in  law  as  a  sufficient  compensation  to  the  injured  party. 

282.  Contracts  for  Sale  of  Personal  Property. — If  the  contract  is  for  the  sale 
of  goods  and  chattels*  which  may  be  readily  obtained  from  other  dealers,  the 
contract  will  not  be  enforced,  because  the  legal  remedy  for  damages  is  adequate, 
enabling  the  party  recovering  damages  to  buy  the  same  goods  or  chattels  from 
others  with  the  money  recovered;  but  if  the  contract  is  for  the  sale  of  an  article 
which  no  one  can  supply  but  the  vendor,*  the  vendee*  may  obtain  a  decree  for 
specific  performance,  because  of  the  inadequacy  of  the  legal  remedy  for  damages. 
A  clearer  idea  may  be  had  by  the  citation  of  two  leading  cases  on  the  subject.  A 
agreed  to  supply  B  with  coal-tai,  which  he  could  not  obtain  if  A  refused  to  fulfill 
his  contract  except  from  distant  cities  and  at  great  expense.  A  decree  was 
obtained  prohibiting  A  from  selling  tar  to  anyone  else.  So  where  the  owner  of 
a  patent  right  agreed  to  furnish  a  chattel  covered  by  the  patent  which  he  alone 
could  supply  specific  performance  was  decreed. 

*Jurisdiction. — The  power  or  right  of  exercising  authority. 

^Specific  Performance. — The  actual  performance  of  a  contract  by  the  party  bound  to  fulfill  it. 
The  old  adage,  "  Perform  your  contract  or  pay  damages,"  applies  only  when  money  is  a 
sufficient  compensation  to  the  injured  party,  and  when  it  is  not  a  sufficient  compensation 
the  party  grieved  may  compel  the  other  to  actually  do  or  perform  what  he  promised. 

♦Injunction. — A  writ  granted  by  a  court  of  equity  whereby  a  party  is  required  to  do  or  refrain 
from  doing  certain  acts. 

♦Chattel. — Property  which  is  movable  or  which  can  be  taken  with  the  person. 

♦Vendor. — One  who  sells. 

♦Vendee. — The  one  to  whom  something  is  sold. 


42  RULFS  RKf..\Tf\(;  TO  TIMK    IV/)  D.\M.\(1K^. 

283.  Contracts  for  Personal  Services. — Where  u  contract  stipulates  for 
special,  iini(|ue  or  extraordinary  personal  services  or  acts,  as,  for  example,  by  an 
eminent  actor 7singer  or  artist  and  the  like,  a  court  of  equity  will  not  pass  a  decree 
compelling  specific  performance,  but  it  will  restrain  the  violation  of  .such  con- 
ulicts  byln junction,  which  practically  amounts  to  specific  performance.  **^An 
injunctioITrestraining  the  breach  of  a  contract  is  a  negative  sj^ccific  enforcement 
of  that  contract.  A  agreed  to  sing  at  B's  theater,  and  to  sing  nowhere  else.  The 
Court  refused  to  decree  specific  performance  of  the  promise  to  sing  at  B's  theater, 
but  enjoined  A  from  singing  elsewhere.  This  decree  amounts  to  a  negative 
specific  performance  of  the  contract.  In  another  case  it  was  held  that  if  the 
services  which  acrobats  have  agreed  to  render  at  plaintiff's  theater  are  unique  or 
unusual  in  character  they  will  be  enjoined  from  violating  their  contract  by  per- 
forming at  a  rival  theater;  otherwise  not.  -*'^The  above  rules  concerning  the 
specific  performance  of  contracts  must  be  taken  with  some  degree  of  caution,  for 
in  the  United  States  it  is  still  a  controverted  question,  yet  the  weight  of  authority 
seems  to  incline  in  the  direction  indicated  in  the  text. 


CASES. 

(Give  reasons  for  answers.) 

61.  A  sold  B  100  pounds  of  flour.  Subsequently  A  refused  to  fulfill  his  contract.  What 
are  B's  rights?^" 

62.  A  sold  B  an  article  which  was  covered  by  A's  patent.  A  refused  to  deliver  the  article, 
and  B  sued  to  compel  specific  performance.  A  was  the  only  person  from  whom  such  an  article 
could  be  obtained.     Can  he  succeed?-'^ 

63.  A  teacher  was  engaged  by  the  president  of  a  college  for  one  year.  The  teacher  refused 
to  enter  upon  his  service.  Thereupon  the  president  brought  an  action  to  require  him  to  perform 
his  contract.     Can  he  succeed?-*'*  ^'* 

64.  A  brought  an  action  against  B  to  compel  the  latter  to  convey  certain  real  estate  which 
had  been  contracted  for  in  writing.     Can  he  succeed?'*' 


CHAPTER  XIII. 

RULES  RELATING  TO  TIME  AND  DAMAGES. 

286.  Time. — Time  may  be  made  the  essence  of  a  contract  by  expressed  stip- 
ulations of  the  parties,  or  from  the  nature  of  the  contract.  ^^^In  mercantile  con- 
tracts stipulations  as  to  the  time  when  an  act  shall  be  performed  are  generally  of 
ihe  essence  of  a  contract.     Under  a  contract  for  the  manufacture  of  goods  and 


RULES  RELATING  TO  TIME  AND  DAMAGES.  43 

their  delivery  on  a  specified  day,  and  there  being  a  failure  to  deliver  the  goods  on 
the  day  named,  the  buyer  is  not  bound  to  accept  them.  -^^Time  is  not  generally 
of  the  essence  of  a  contract  to  convey  land,  but  it  may  be  made  so  by  agreement. 
-'*^If  one  party  prevents  performance  by  the  other  within  the  stipulated  time  the 
latter  will  be  allowed  to  perform  subsequently.  For  instance,  if  one  party  to  a 
contract  directs  alterations  to  be  made,  an  extension  of  time,  as  is  necessitated  by 
the  change,  will  be  implied. 

290.  Damages. — In  order  to  secure  the  performance  of  a  contract  within  a 
certain  time  it  is  often  agreed  that  in  the  event  of  a  default  by  one  of  the  parties 
the  party  in  default  shall  pay  to  the  other  a  certain  sum  of  money,  or  forfeit  a 
certain  amount  to  be  paid  on  the  contract.  ^^^If  the  sum  to  be  paid  be  a  penalty 
for  violating  the  contract  it  will  not  be  enforced,  but  if  it  be  damages  it  will  be 
enforced. 

292The  rules  governing  penalties  and  liquidated  damages  are  explained  by  the 
following  illustrations.  When  a  greater  sum  of  money  is  to  be  paid,  upon  the 
failing  to  pay  a  smaller  sum,  it  is  a  penalty,  and  enforceable.  ^^^The  legal  rate  of 
interest  on  the  money  is  the  measure  of  the  damages.  ^^^When  a  building  con- 
tract,  or  one  for  similar  work,  provides  that  if  the  work  is  not  completed  by  a 
certain  time  the  builder  shall  pay  a  certain  sum  for  each  day's  delay,  it  is  gener- 
ally treated  as  liquidated  damages,  and  not  a  penalty.  But  if  the  amount  to  be 
forfeited  be  excessive  it  will  then  be  considered  as  a  penalty.  Thus  when  a  con- 
tract for  building  a  house,  the  rental  value  of  which  was  $22  per  week,  provides 
that  $140  per  week  shall  be  paid  for  delay  in  the  completion  of  the  work,  such  a 
sum  is  regarded  as  a  penalty,  and  therefore  not  enforceable.  ^^^It  must  be  shown, 
in  all  cases,  that  the  plaintiff  has  actually  sustained  a  loss,  otherwise  he  will  not 
be  entitled  to  recover  damages. 

296.  Measure  of  Damages. — In  a  suit  to  recover  damages  for  the  breach  of  a 
contract  to  sell  personal  property  the  measure  of  damages  is  the  difference  be- 
tween the  market  price  at  the  time  of  delivery  and  the  contract  price.  ^"Specu- 
lative  damages  are  not  recoverable.  Where  a  mill  was  not  completed  within  the 
time  specified  in  the  contract  the  damages  are  to  be  estimated  by  what  is  a  fair 
rent  of  the  mill  during  the  time  the  owner  was  kept  out  of  its  use.  He  cannot  be 
allowed  estimated  profits  arising  from  the  working  of  the  mill.  When  a  contract 
of  sale  has  been  broken  by  the  seller,  the  profits  which  the  buyer  would  have 
made  from  subsidiary  contracts  with  third  persons  cannot,  as  a  general  rule,  be 
recovered. 

QUESTIONS   FOR   REVIEW. 

1.  Define  Law.  2.  What  is  Common  Law?  3.  Define  Statutory  Law.  4.  What  is  a. 
contract?     5.  What  are  the  elements  of  a  contract?     6.  How  may  an  offer  and  acceptance 


44  BILLS  AND  NOTES. 

be  made?  7.  May  the  offerer  so  word  the  proposition  as  to  rc<iuire  the  offeree  to  do  some  act 
or  his  silence  will  be  construed  to  be  an  acceptance  of  the  offer?  X.  When  may  an  offer  be 
revoked?  9.  When  is  an  acceptance  by  mail  complete,  and  why?  10.  What  are  the  valid 
contracts  of  infants?  11.  To  wliat  extent  is  an  adult  bound  on  a  contract  made  with  an  infant? 
12.  How  may  :in  infant  avoid  an  executed  contract?  13.  Define  consideration.  14.  What  is  a 
good  consideration?  15.  When  is  it  sufficient  to  uphold  a  contract?  16.  What  is  meant  by  a 
valuable  consideration?  17.  Must  the  exchange  of  values  be  equal?  18.  W^hen  are  gratuitous 
subscriptions  enforceable?  19.  What  is  a  past  consideration?  20.  Is  a  past  consideration  ever 
sufficient  to  uphold  a  promise?  21.  What  are  gaming  and  wagering  contracts?  22.  How  do 
they  differ?  23.  What  contracts  are  void  because  "against  public  policy?"  24  To  what  extent 
may  a  contract  restrain  trade?  25.  What  are  the  essential  characteristics  to  constitute  fraud? 
26.  What  remedies  has  a  defrauded  party?  27.  What  is  the  result  when  both  parties  have  been 
guilty  of  fraud?  28.  What  are  the  three  classes  of  contracts?  29.  What  is  a  specialty  contract? 
30.  What  are  the  five  important  distinctions  between  Specialty  and  Simple  contracts?  31.  What 
is  meant  by  Statute  of  Frauds?  32.  What  classes  of  contracts  does  it  require  to  be  written? 
33.  What  constitutes  a  sufficient  wTiting?  34.  May  the  testimony  of  witnesses  be  substituted 
for  the  written  memorandum?  35.  What  is  meant  by  goods,  wares  and  merchandise?  36. 
When  a  contract  has  been  reduced  to  writing,  may  oral  testimony  be  offered  to  change  or  vary  the 
terms  of  the  contract?  37.  What  constitutes  a  valid  usage?  38.  Does  a  usage  become  a  part  of 
every  contract?  39.  What  are  the  ways  of  discharging  a  contract?  40.  What  are  the  forms 
of  money  used  in  the  United  States?  41.  To  what  extent  is  each  kind  of  money  a  legal  tender? 
42.  When  will  the  gi^^ng  of  a  note  be  considered  payment  of  a  debt?  43.  May  a  servant  recover 
for  part  performance  of  his  contract?  44.  May  a  servant  recover  for  part  performance  of  his 
contract  when  he  was  rightfully  discharged?  45.  "Wliat  is  meant  by  "specific  performance" 
of  a  contract?  46.  When  may  specific  performance  be  had?  47.  What  is  a  negative  specific 
enforcement  of  a  contract?  48.  What  is  meant  by  "  restraint  of  trade,"  and  why  is  such  a  thing 
an  unlawful  object  of  contract?  49.  As  contracts  restraining  trade  are  usually  for  more  than  one 
year,  must  they  be  written  in  order  to  enforce  them?  50.  What  is  a  void  contract?  51.  Define 
a  voidable  contract 


CHAPTER  XIV. 

BILLS  AND  NOTES. 

298.  Negotiable  Instruments  Law. — In  1895  the  Commissioners  on  Uni- 
formity of  Laws,  appointed  by  the  American  Bar  Association,  had  prepared  by  a 
sub-committee  a  codification  of  the  law  relating  to  Bills  and  Notes.  When 
completed  the  draft  of  the  law  was  submitted  to  many  prominent  lawyers  and 
professors  and  to  several  English  lawyers  and  judges,  with  an  invitation  for  sug- 
gestions and  criticisms.  ^"^In  1896,  at  a  conference  of  the  Commissioners  on 
Uniformity  of  Laws,  the  draft  as  submitted  was  adopted.  It  is  known  as  the 
Negotiable  Instruments  Law.     ^""It  has  been  submitted  to  the  legislatures  of 


BILLS  AND  NOTES.  45 

many  of  the  States,  having  been  adopted  by  New  York,  Connecticut,  Colorado, 
Florida,  Maryland,  Massachusetts,  Virginia,  North  Carolina,  District  of  Columbia, 
North  Dakota,  Oregon  and  Washington.  It  will  probably  be  but  a  few  years 
until  all  the  States  will  have  passed  the  "Negotiable  Instruments  Law;"  we  there- 
fore base  the  law  of  Bills  and  Notes  on  this  act.  ^°^The  act,  however,  does  not  in 
any  way  revolutionize  the  old  law  on  the  subject.  Not  many  changes  were  made 
in  the  pre-existing  law,  but  such  as  were  made  will  be  noticed  as  we  proceed. 
The  law  which  is  applicable  to  Bills  of  Exchange  is,  for  the  most  part,  equally 
applicable  to  Promissory  Notes.  We  shall,  therefore,  treat  of  them  collectively. 
Whenever  the  law  does  not  equally  apply  it  will  be  so  stated. 

302.  Negotiable  and  Non-Negotiable  Paper. — Commercial  paper  is  simply  a 
form  of  contract — that  for  the  payment  of  money  only.  ^^^These  written  con- 
tracts are  called  drafts,  bills,  notes,  checks,  certificates  of  deposit,  etc.,  and  are 
negotiable*  or  non-negotiable.  The  usual  acceptance  of  the  term  "non-negotia- 
ble" is  that  such  paper  cannot  be  bought  or  sold.  ^*'*At  common  law  that  was 
true,  but  by  statute  all  non-negotiable  bills  and  notes  may  be  transferred  by 
assignment,*  the  assignee  (the  person  to  whom  it  is  transferred)  receiving  the 
same  rights  to  collect  as  the  assignor  (the  person  who  makes  the  assignment). 
The  student,  then,  must  bear  in  mind  that  if  for  some  reason  the  note,  draft, 
check,  etc.,  is  not  negotiable  it  does  not  mean  that  it  is  not  subject  to  sale. 
Negotiable  paper  simply  possesses  certain  highly  valuable  qualities  which  non- 
negotiable  paper  does  not.  One  who  takes  it  in  the  regular  course  of  business 
is  largely  protected.  What  these  qualities  and  protections  are  cannot  be  stated 
in  an  abstract  rule.  We  shall  consider  them  under  the  following  heads:  1. 
Assignment;  2.  Value  of  Assignment;  3.  Title;  4.  Consideration. 

305.  Assignment. — Negotiable  paper  is  always  assignable  by  either  en- 
dorsement  and  delivery  or  by  delivery.  Non-negotiable  paper  was  not  assign- 
able at  common  law.  ^""By  statute  it  and  all  other  "choses  in  action"*  for  the 
payment  of  money  are  made  assignable,  so  as  to  enable  the  assignee*  to  recover 
in  his  own  name.  ^"''Such  assignment  must  be  in  writing,  signed  by  the  assignor,* 
either  on  the  instrument  itself  or  separate  paper.  No  particular  form  of  words 
is  required.  It  has  been  held  that  a  blank  endorsement  is  sufficient  to  constitute 
the  party  to  whom  it  is  delivered  the  absolute  owner,  with  power  to  fill  up  the 


*Negotiable. — Capable  of  being  sold  cr  transferred. 

*Assignment. — The  writing  by  which  title  or  interest  in  the  paper  is  transferred. 
*Chose. — A  thing;  personal  property.     A  chase  in  action  is  a  tiling  of  which  one  has  not  possession 
or  actual  enjoyment,  but  only  a  right  to  it,  as  a  right  to  recover  money  due  on  a  contract. 
*Assignee. — A  person  to  whom  an  assignment  is  made. 
*Assignor.-  -A  person  who  assigns  or  transfers  his  interest. 


48  BILLS  AND  NOTES. 

assignment.  The  following,  written  on  the  back  of  the  note  which  is  non-negoti- 
able is  sufficient  to  give  the  assignee  all  the  rights  of  the  assignor;  "For  value 
received  I  hereby  assign  to  W.  0.  Coy  the  within  note.     J.  N.  Mann." 

308.  Value  of  Assignment. — In  transferring  non-negotiable  paper  the  as- 
signee takes  it  subject  to  all  the  equities*  and  defenses*  that  exist  between  the 
original  parties  up  to  the  time  of  assignment  and  before  notice  thereof  was  given 
to  the  party  primarily  liable.  ^"^Negotiable  paper  is  not  subject  to  these  defenses, 
but  carries  with  it  the  right  of  the  holder  to  recover  the  whole  amount  which 
appears  on  its  face  when  passed  maturity,  without  notice,  and  in  the  usual  course 
of  business,  the  meaning  of  which  ^vill  be  explained  later  on.  An  illustration  will 
make  clearer  the  difference:  A  makes  a  note  for  $1000,  payable  in  six  months 
to  the  order  of  B.  B  endorses  it  to  C.  While  B  held  the  note  A  made  a  pay- 
ment on  it  of  $500.  The  payment  was  not  endorsed  on  the  note.  At  maturity 
C  can  recover  from  A  the  whole  amount,  $1000.  But  suppose  the  note  was 
non-negotiable,  that  is,  it  did  not  contain  the  words,  "order  or  bearer,"  or  for 
some  other  reasons  its  negotiability  was  destroyed.  Then  C  could  not  recover 
the  whole  amount.  He  can  recover  no  more  than  B.  He  takes  B's  rights  only, 
for,  applying  the  rule,  C  takes  it  subject  to  all  equities  that  existed  between  A 
and  B. 

310.  Title. — By  common  law  a  party  cannot  pass  title  to  any  personal  prop- 
erty that  he  does  not  own,  but  title  to  negotiable  paper  may  be  passed  by  one 
who  has  no  title,  provided  the  assignment  .'s  made  before  maturity,  without 
notice,  and  in  the  usual  course  of  business.  A  steals  a  note  from  B's  safe.  A 
can  pass  title  to  the  note,  although  he  has  none  himself.  If,  however,  A  steals 
a  watch  or  other  personal  property,  he  cannot  pass  title.  The  watch  or  other 
property  may  be  recovered  from  the  buyer,  but  a  negotiable  note  cannot  be  so 
recovered  from  a  bona  fide  holder  for  value. 

311.  Consideration. — In  negotiable  paper  the  consideration  is  presumed. 
^*-As  between  the  immediate  parties,  the  presumption  may  be  rebutted,  but  in 
favor  of  a  bona  fide  holder  the  presumption  is  conclusive.  Brown  gives  his  note 
to  Smith  for  a  past  consideration.  Smith  cannot  recover  on  the  note,  because 
a  past  consideration  is  insufficient  to  support  a  contract  as  between  immediate 
parties.  But  if  Smith  transfers  the  note  to  Jones,  he  being  a  bona  fide  holder 
for  value,  may  recover.  Brown  and  Smith  are  immediate  parties,  and  Brown 
and  Jones  are  known  as  remote  parties,  and  as  between  remote  parties  the 
maker  cannot  question  the  want  of  a  sufficient  consideration. 

*Equity. — Natural  or  equal  justice  between  contending  parties;  the  givina:  or  desire  to  cive  t« 

(>ach  man  his  due  according  to  reason. 
*Dcfens<\ — That  whicli  protects;  a  denial  of  the  truth  or  validfty  of  tlie  plaintitil's  claina. 


BILLS  AND  NOTES. 


6.1 


ANALYSIS  OF  DRAFTS  AND  NOTES. 


1.    Negotiable  distinguished  from  non-negotiable. 


f  1.  Assignment. 

2.  Value  of  assignment 

3.  Title. 

4.  Consideration. 


2.    Definition 


/I.     Of  bill  of  exchange. 
\  2.     Of  promissory  note. 


3.    Parties 


1.    Of  draft 


2.  Of  note 

3.  Immediate. 

4.  Remote. 

5.  Holder. 


r  1.  Drawer. 

'  2.  Drawee. 

[  3.  Payee, 

/  1.  Maker. 

\  2.  Payee. 


4.    Requisites  of  negotiability 


5.     Effect  of  additional  stipulations 


1 .  Must  be  p.ayable  absolutely. 

2.  The    bill    must    contain    certain    direction 

and  the  note  a  certain  promise  to  pay. 

3.  Negotiable  words. 

4.  Certainty  as  to  amount. 

5.  For  payment  of  motiey  only. 

6.  Must  be  unsealed. 

7.  Must  be  delivered. 

f  !.  Appointing  holder  to  confess  judgment 

\  2.  Waiving  exemptions,  etc. 

I.  3.  Payment  of  collection  and  attorney's  fees 


f  1. 


6.    Form  of 


7.    Maturity 


.  S.    Acceptance 


Date  of  making. 

Time  of  payment 

Payee. 

Amount. 

Consideration. 

Signature. 

Drawee. 


Days  of  grace. 

Sunday  and  legal  holidays. 

Written, 

Verbal. 

Written  promise  to  accept. 

Who  may  accept. 

When  it  may  be  made 

General.    ' 

'  1. 
2. 
QualifiafJ     3. 


1.  At  sight. 

2.  At  thirty  days'  sight. 

3.  At  thirty  days  after  sigh 

4.  On  demaad. 


15. 


Aa  to  amount. 

As  to  time. 

As  to  number  ol  aeceptorf 

Imposing  a  condition. 

Effect  of. 


48  PARTIES  TO  COMMERCIAL  PAPER. 


CHAPTER  XV. 
PARTIES  TO   COMMERCIAL  PAPER. 

313.  Definition. — A  Rill  of  Exchanji;c  (commonly  called  "draft,"  and  here- 
after to  be  known  as  such)  is  an  unconditional  order  in  writing  for  the  payment 
of  a  sum  of  money,  absolute  and  at  all  events. 

^"A  note  is  an  unconditional  written  promise  signed  by  the  maker  for  the 
payment  of  a  sum  of  money  absolutely  and  at  all  events,  either  to  the  bearer  or  to 
a  person  therein  designated,  or  his  order.  The  most  important  distinction  be- 
tween a  note  and  a  draft  is,  that  in  the  former  there  is  a  promise  by  one  party  to 
another  to  pay,  and,  in  the  latter,  there  is  a  request  by  one  party  of  another  to 
pay  the  amount  stated  in  the  paper. 

315.  Parties. — There  must,  in  point  of  form,  be  three  parties  to  a  draft  and 
check,  and  two  to  a  note.     We  submit  a  form  of  each  to  illustrate. 

DRAFT. 

316.  Form. 


The  parties  to  a  draft  are: 

1.  Drawer. — The  party  who  gives  the  order. 

2.  Drawee. — The  party  on  whom  the  order  is  given. 

3.  Payee. — The  party  in  whose  favor  the  order  is  givep 


PARTIES  TO  COMMERCIAL  PAPER.  49 

In  the  form  No.  316  the  drawer  is  H.  G.  Grant,  the  drawee  is  Bowman  & 
Co.,  and  the  payee  is  Johnson,  Lippincott  &  Co.;  that  is,  H.  G.  Grant  requests 
Bowman  &  Co.  to  pay  the  amount  named  to  Johnson,  Lippincott  &  Co. 

After  the  drawee  has  accepted  a  draft  he  is  no  longer  called  the  drawee,  but 
acceptor. 

CHECK. 

317.  Form. 


iyuruM^^^,^f-- 


A  check  has  the  same  parties  as  a  draft,  i.  e.,  drawer,  drawee  and  payee. 
The  drawer  of  a  check  is  often  spoken  of  as  a  maker,  which  is  not  correct.  Maker 
applies  only  to  the  signers  of  Promissory  Notes.  In  the  above  form  the  drawer 
is  X.  W.  Zaner,  the  drawee  is  the  Merchants'  National  Bank,  and  the  payee  is 
Davis  &  Comer. 

NOTE. 

318.  Form. 

The  parties  to  a  note  are: 

1.  Maker. — The  party  who  makes  the  promise. 

2.  Payee. — The  person  in  whose  favor  the  promise  is  made. 

In  the  form  No.  318  the  maker  is  H.  H.  Etter,  and  the  payee  is  John  Wana- 
maker.  The  contract  and  liabilities  of  the  different  parties  in  a  draft,  check 
and  note  are  fully  discussed  in  a  succeeding  chapter. 


so  PARTIES  TO  COMMERCIAL  PAPER. 

319.  Immediate  Parties. — Those  parties  between  whom  there  is  privity  nj 
contract,  1.  e.,  drawer  and  acceptor,  drawer  and  payee,  maker  and  payee  and 
endorser  and  immediate  endorsee.  Privity  of  contract  means  a  connection  or 
bond  of  union  between  parties  as  to  some  particular  transaction. 

320.  Remote  Parties. — Those  parties  between  whom  there  is  no  privity  of 
contract,  i.  e.,  maker  and  endorsee,  paj^ee  and  acceptor.  It  is  important  that 
these  two  classes  be  remembered,  because  between  the  immediate  parties  the 
rights  of  a  bona  fide  holder  never  apply,  whereas  in  case  of  remote  parties  the 
rights  of  a  bona  fide  holder  do  apply. 

321.  Holder. — "Holder"  means  the  person  who  is  in  actual  or  constructive 
possession  of  the  paper  and  entitled  at  law  to  enforce  payment  thereof  by  the 
maker,  acceptor  or  endorser.  ^^-An  endorser  of  non-negotiable  paper  is  not  lia- 
ble for  payment,  because  his  liability  attaches  to  negotiable  paper  only.  Holder 
includes  payee,  endorsee  or  bearer. 

323.  Form.  RECEIPT. 

324.  Receipt. — A  receipt  is  a  written  acknowledgment  of  the  payment  of 
money  or  delivery  of  chattels.  It  is  executed  by  the  person  to  whom  the  delivery 
or  payment  is  made.  The  receipt  must  be  delivered  to  the  debtor,  for  a  memor- 
andum or  payment  made  by  the  creditor  in  his  own  books  is  no  receipt. 

325.  Effect  of. — The  mere  acknowledgment  of  payment  made  is  not  treated 
in  law  as  binding  or  conclusive.  So  far  as  a  simple  acknowledgment  of  payment 
or  delivery  is  concerned  it  is  prima  facie*  evidence  only,  and  is,  in  general;  open 
to  explanation.  This  is  an  exception  to  the  general  rule  that  parol  evidence 
cannot  be  admitted  to  contradict  or  vary  a  written  instrument.  Thus,  a  party 
may  always  show  in  explanation  of  a  receipt  that  it  was  obtained  by  fraud,  or 
given  under  a  mistake,  or  that,  in  point  of  fact,  no  money  was  actually  paid  as 
stated  in  it. 


*Prima  Facie. — At  first  view  or  appearance. 

Prima  facie  evidence  is  such  evidence  which  is  sufficient  to  estabhsh  the  fact  unless  rebutted. 


REQUISITES  OF  NEGOTIABILITY.  61 

CHAPTER  XVI. 

REQUISITES  OF  NEGOTIABILITY. 

326.  Essential  Requisites. — There  are  certain  essential  things  which  every 
negotiable  instrument  must  contain,  and  the  absence  of  any  one  of  them  will 
destroy  its  negotiable  characteristics.     ^-^They  are  six  in  number,  as  follows: 

1.  Must  be  payable  absolutely  and  without  contingencies. 

2.  The  bill  must  contain  a  certain  direction,  and  the  note  a  certain  promise 
to   pay. 

3.  Negotiable  words. 

4.  Certainty  as  to  amount. 

5.  For  payment  of  money  only, 

6.  Must  be  delivered. 

^^*We  shall  consider  these  requisites  in  the  following  order.  The  student 
will  have  little  or  no  difficulty  in  remembering  them,  as  they  are  given  in  the 
order  in  which  they  arise  in  the  usual  form  of  drafts  and  notes. 

329.  Must  Be  Payable  Absolutely  and  Without  Contingencies. — An  instru- 
ment made  payable  on  the  happening  of  an  uncertain  event  or  contingency  is  not 
negotiable,  and  the  happening  of  the  event  does  not  cure  the  defect.  ^^"But  if 
the  contingency  is  one  which  is  sure  to  happen,  that  is,  the  time  made  certain, 
though  no  one  can  tell  when,  it  does  not  destroy  its  negotiability.  "Pay  C,  or 
order,  $100  ten  days  after  the  death  of  D,"  is  negotiable,  because  the  death  of 
D  is  sure  to  take  place,  although  the  precise  time  is  not  known.  "Pay  C,  or  order 
when  I  marry  D,"  is  not  negotiable,  because  it  is  not  certain  that  the  event  will 
ever  happen, 

331.  Certainty  as  to  Amount. — The  sum  paj-able  must  be  certain  and  defi- 
nite, or  capable  of  being  made  certain. 

'^^The  sum  is  certain,  although  it  is  to  be  paid: 

1.  With  interest;  or, 

2.  By  stated  instalments;  or, 

3.  By  stated  instalments,  with  a  provision  that  upon  default  in  payment  of 
any  instalments  or  of  interest  the  whole  shall  become  due;  or, 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the  current  rate;  or, 

5.  With  costs  of  collection  or  an  attorney's  fee  in  case  payment  shall  not  be 
made  at  maturity.     ^^^As  to  clauses  which  contain  a  stipulation  that  the  maker 


62  REQUISITES  OF  NEGOTIABILITY. 

shall  pay  costs  and  attorney's  fees,  there  has  been  much  conflict  in  the  decisions. 
The  rule  adopted  is  the  one  sustained  by  the  weight  of  authority.  The  courts 
which  have  sustained  this  rule  have  taken  the  view  that  so  long  as  the  amount 
payable  is  certain  up  to  maturity  and  dishonor,  it  is  not  essential  that  aficr  that 
time  when  it  has  become  non-negotiable  for  other  reasons  the  certainty  as  to  the 
amount  should  continue. 

The  following  are  not  negotiable,  because  they  arc  at  variance  with  the  rule: 

1.  Pay  C,  or  order,  $100  and  all  other  sums  which  may  be  due  him. 

2.  Pay  C,  or  order,  the  proceeds  of  shipment  of  goods,  value  $2000,  con- 
signed by  me  to  you. 

The  following  are  negotiable: 

1.  A  promise  to  pay  $40  per  acre  for  the  X  lot  of  land  becomes  valid  when 
the  number  of  acres  is  endorsed  thereon. 

2.  A  promise  to  pay  $100,  with  interest,  on  or  before  January  1,  1899. 

334.  For  Payment  of  Money  Only. — The  instrument  must  require  the  pay- 
ment of  money.  This  means  gold,  silver,  treasury  notes  or  national  bank  bills; 
the  latter,  although  not  legal  tender,  have  been  legalized  as  national  currency. 
The  following  are  not  negotiable: 

1.  A  promise  to  pay  C,  or  order,  $100  in  cotton,  or  in  work  and  labor. 

2.  A  promise  to  pay  in  currency  of  a  foreign  country. 

3.  Pay  C,  or  order,  the  accrued  rent,  though  the  rent  is  payable  in  money. 

4.  Pay  C,  or  order,  $100  in  United  States  bonds. 

^^Notes  or  bills  payable  out  of  a  particular  fund  are  not  negotiable  bills  or 
notes,  because  payment  is  contingent  cgi  the  adequacy  of  the  fund.  The  words 
"out  of"  are  usually  relied  upon  to  show  such  a  contingency. 

The  following  are  not  negotiable: 

1.  Pay  C,  or  order,  $100  out  of  the  money  in  your  hands  belonging  to  the  D  Co. 

2.  Pay  C,  or  order,  $100  out  of  the  money  arising  from  the  sale  of  my  land. 

''®An  absolute  order  to  pay,  coupled  with  a  direction  to  the  drawee  to  reim- 
burse himself  out  of  a  particular  fund,  or  show  to  what  account  it  is  charged,  is 
negotiable,  because  the  fund  is  not  the  source  of  payment. 

The  following  are  negotiable: 

1.  Pay  C,  or  order,  $100,  and  take  the  same  out  of  our  share  of  the  grain 
when  sold. 

2.  Pay  C,  or  order,  $100  on  account  of  money  advanced  by  me  for  the  Roe 
Company. 

337.  The  Bill  Must  Contain  a  Certain  Direction  and  the  Note  a  Certain 
Promise  to  Pay. — A  bill  is  not  asking  a  favor.  ^^^The  direction  to  the  drawee 
must  be  imperative.     "Please  let  bearer  have  $100,  and  you  \\'ill  much  oblige 


REQUISITES  OF  NEGOTIABILITY.  53 

me,"  was  held  to  be  inyalid.  A  promissory  note  may  be  in  any  form  of  words 
from  which  a  promise  may  be  implied.  There  must,  however,  be  something 
more  than  mere  acknowledgment  of  indebtedness. 

The  following  are  not  notes,  but  mere  evidence  of  indebtedness; 

1.  Due  C  $100,  value  received. 

2.  I.  0.  U.  SIOO. 

3.  I  owe  you  SIOO,  to  be  paid  September  1,  1895. 

4.  Due  C,  or  order,  on  demand,  $100. 

339.  Negotiable  Words.— These  words  are  "order"  or  "bearer."  ^^"They 
are  not  essentially  requisite  to  validity  of  bill  or  note,  but  are  necessary  to  make 
them  negotiable.  ^"If  the  bill  or  note  be  payable  to  A,  or  order,  it  is  payable  to 
him  or  to  the  person  to  whom  he  orders  it  to  be  paid.  He  may  transfer  his  rights, 
and  even  better  rights  than  he  possessed,  to  a  third  party  by  endorsement  and 
delivery:  ^^^If  made  payable  to  A,  or  bearer,  he  may  transfer  the  right  and  title 
to  the  paper  by  mere  delivery  in  the  same  manner  as  he  would  transfer  the  right 
or  title  to  a  book  or  other  personal  property  the  possession  of  which  is  prima 
facie  evidence  of  ownership.  ^^^There  is  a  difference  in  the  expression  "Pay  to 
the  order  of  A"  and  "Pay  to  bearer,  A."  The  former  is  the  same  as  if  it  read, 
"A,  or  order,"  while  the  latter  is  not  equivalent  to  "A,  or  bearer;"  hence,  if  the 
word  bearer  precedes  the  payee's  name  the  paper  is  not  negotiable. 

344.  Must  Be  Delivered. — Delivery  is  essential  to  the  validity  of  bills  and 
notes.  There  must  be  a  transfer  of  the  possession  of  the  instrument.  B,  who 
is  indebted  to  C,  makes  a  note  for  the  amount,  payable  to  C.  B  dies,  and  the 
note  is  afterwards  found  among  his  papers.  C  has  no  right  to  this  note,  and  if 
given  to  him,  cannot  enforce  payment. 

345.  Escrow. — Commercial  paper  may  be  given  as  escrow;  by  this  we  mean 
that  the  paper  may  be  delivered  to  a  third  person  to  hold  until  the  payee  does 
some  act  or  performs  some  condition,  and  which  is  not  to  take  effect  until  the 
condition  is  performed,  and  its  negotiation  contrary  to  the  condition  may  be 
restrained  by  injunction.  ^^"As  between  immediate  parties,  if  the  condition  has 
not  been  fulfilled  no  recovery  can  be  had.  If  put  in  the  hands  of  an  agent  to  be 
delivered  on  condition,  it  may  be  recalled  any  time  before  delivery.  C,  the  holder 
of  a  note,  endorses  it  to  D;  C  transmits  it  by  post  to  his  own  agent.  The  agent 
informs  D  that  he  has  received  the  note  endorsed  especially  to  him  (D) ,  but  does  not 
deliver  it  to  him.     C  can  revoke  the  transaction  and  cancel  his  endorsement  to  D. 

^*^When  negotiable  instruments  have  been  delivered  conditionally  or  as 
escrow  they  differ  from  choses  in  action  or  non-negotiable  paper  in  this,  that  if 
delivered  contrary  to  instructions  to  a  bona  fide  holder  all  parties  are  bound  to 
such  holder.  C,  the  holder  of  a  bill,  endorses  it  especially  to  D  in  order  that  he 
may  get  it  discounted  for  him.     D,  in  a  breach  of  trust,  negotiates  the  bill  to  E. 


64  ADDITIONAL  STIPULATIONS. 

If  E  takes  the  bill  bona  fide  he  acquires  a  good  title,  and  can  sue  all  the  parties 
thereto.  If  he  does  not  so  take  it,  he  cannot  sue  C;  and  if  he  sues  the  acceptor 
the  latter  may  set  up  as  a  defense  that  the  bill  is  C's.  Deliver}'  is  presumed  from 
possession  of  the  paper  by  payee  or  holder,  and  that  delivery  was  made  at  vim.e 
of  date  of  instrument.     Such  presumption  may,  however,  be  rebutted. 


CHAPTER  XVII. 


ADDITIONAL  STIPULATIONS. 


348.  Additional  Stipulations  Not  Affecting  Negotiability. — Having  treated  of 
the  essential  requisites  of  negotiable  paper,  there  yet  remains  to  be  considered  a 
practice  which  has  become  quite  common  in  the  United  States  within  the  last 
quarter  of  a  century  of  embodying  in  notes  provisions  which: 

1.  Authorizes  the  sale  of  collateral  securities  in  case  the  instrument  be  not 
paid  at  maturity;  or, 

2.  Authorizes  a  confession  of  judgment  if  the  instrument  be  not  paid  at 
maturity;  or, 

3.  Waives  the  benefit  of  any  law  intended  for  the  advantage  or  protection  of 
the  obligor  (one  obligated);  or, 

4.  Gives  the  holder  an  election  to  require  something  to  be  done  in  lieu  of 
payment  of  money. 

^^^The  "Negotiable  Instruments  Law"  provides  that  an  instrument  otherwise 
negotiable,  containing  any  of  the  above  provisions,  is  to  be  regarded  as  nego- 
tiable. 


^^"Before  the  adoption  of  this  act  it  was  usually  held  by  the  courts  that 
these  additional  stipulations  destroyed  the  negotiability  of  the  paper,  because 
they  have  a  tendency  to  encumber  the  paper,  which,  in  order  that  it  may  circu- 
late with  freedom  among  business  men  and  supply  the  want  for  which  it  was 
created,  should  be  free  from  conditions  and  contingencies  and  contain  only  the 
bare  promise  for  the  payment  of  a  certain  sum  of  money  absolutely  and  at  all 
events.  In  former  years  the  practice  of  inserting  these  provisions  was  very 
limited,  but  in  recent  years  it  has  become  a  common  custom,  and  it  is  to  meet 
this  practice  that  the  former  rulings  of  the  Courts  were  changed. 


ADDITIONAL  STIPULATIONS.  55 

^^*We  herewith  submit  a  number  of  forms  to  ilkistrato  how  such  notes  are 
usually  drawn.     They  may  be  worded  in  many  different  ways. 


Note  Waiving   Exemptions. 


■^^■^f^?^. 


352.  Waiving  Exemptions. — The  security  which  the  law  gives  to  every 
creditor  is  that  if  the  debtor  does  not  pay  his  creditor  the  latter  may,  by  obtain- 
ing a  judgment,  have  the  property  of  the  debtor  sold  and  the  proceeds  of  sale 
applied  on  the  debt.  ^^^But  in  all  the  States  the  legislatures  thereof  have  made 
provisions  whereby  a  certain  amount  of  property  of  the  debtor  is  exempt  from 
attachment  and  cannot  be  sold  to  pay  his  debts.  The  value  of  property  exempt 
varies  in  the  different  States  from  $100  to  $2500.  ^^"^ While  the  law  gives  to  ever>' 
debtor  this  protection,  yet  he  may  waive  or  give  up  this  right  and  allow  his 
creditor  to  take  every  dollar's  worth  of  his  property.  The  above  form  illustrates 
the  wording  of  a  note  whereby  the  maker  or  debtor  gives  up  the  right  which  the 
law  gives  him  of  keeping  a  part  of  his  property. 

355.  Judgment  Note. — A  note  wherein  the  maker  gives  the  holder  a  power  of 
attorney,  authorizing  him  to  appear  in  court  and  obtain  a  judgment  against  the 
maker  for  the  amount,  is  called  a  judgment  note.  This  is  a  very  severe  form  of 
contract,  and  should,  if  possible,  be  avoided  under  all  circumstances.  The  fol- 
lowing form  is  one  quite  generally  used  in  Pennsylvania.  It  illustrates  not  only 
a  judgment  note,  but  also  homestead  exemption  and  payment  of  collection  fees. 
Judgment  notes  are  not  permitted  in  the  State  of  New  York. 


56  ADDITIONAL  STIPULATIONS. 

NoTK  Appointing  Holder  to  Confess  Judgment,  Waiving  Exemptions  and 
Payment  of  Collection  Fees. 


->"H♦-■♦-^- 


SlOOO,  Philadelphia^  Sept,  /,  IQ  -»► 

■  t 

Three   77ionths   after  date   I  promise   to   pay  t 

to    the    order    of   Fair  man    A .    Sadler    &f     Co.  t 


Without  Defalcation,  wi7/i  interest;  and  further  do  hereby  autfiorize  and  empower 
any  attorney  of  any  Court  of  Record  in  Pennsylvania,  or  elsewhere,  to  appear  for  and  con- 
fess judgment  for  the  above  sum,  with  or  without  declaration,  urith  costs  of  suit,  release 
of  errors,  unthout  stay  of  execution,  and  with  five  per  cent  added  for  collection  fees,  and 
also  waive  the  right  of  inquisition  on  my  real  estate  that  may  be  levied  upon  to  collect  this 
note,  and  do  liereby  voluntarily  condemn  the  same  and  authorize  the  Prothonotary  to  enter 
upon  tlie  Fi.  Fa.  said  voluntary  condemnation;  and  furtlier  agree  that  said  estate  may  be 
sold  on  a  Fi.  Fa.,  and  liereby  waive  and  release  all  relief  from  any  and  all  appraisement, 
stay,  or  exemption  laws  of  any  State,  now  in  force,  or  hereafter  to  be  passed;  and  also 
waive  the  benefit  of  the  present  and  any  future  bankrupt  law  that  may  be  passed  by  the 
United  States. 

Samuel  P,  Blair. 


-♦♦♦♦♦  ♦-♦-• 

356.  Collateral  Notes. — Collateral  means  security  given  in  addition  to  a 
principal  promise;  therefore  a  collateral  note  is  one  which  contains  a  security  for 
the  payment  of  money  in  addition  to  the  principal  security.  The  principal 
security  is  the  bare  promise  of  the  maker  to  pay  the  sum  named;  the  collateral 
security  is  any  stocks,  bonds,  warehouse  receipts  or  other  tangible  property  given 
to  the  holder  of  the  note.  ^"The  maker  of  the  note  gives  the  holder  the  power  to 
sell  the  collateral  in  case  the  note  is  not  paid  at  maturity.  ^^^The  sto,cks,  bonds 
or  other  securities  given  with  the  note  are  not  the  property  of  the  party  who 
loaned  the  money,  and  must  not,  under  any  circumstances,  be  used  by  him 
except  in  default  of  payment.  They  are  only  pledged  to  make  the  loan  secure, 
and  when  the  money  is  repaid  they  must  be  returned  to  the  borrower.  The 
nominal  value  of  the  collateral  usually  exceeds  the  amount  of  the  loan,  because 
at  a  forced  sale  the  collateral  might  not  bring  a  sum  equal  to  the  amount  loaned. 


ADDITIONAL  STIPULATIONS.  57 

^''^As  this  method  has  become  a  very  common  practice  of  obtaining  loans,  we 
will  more  fully  illustrate  by  supposing  Mr.  Brown  wanted  to  obtain  a  loan  from 
the  American  National  Bank  for  $10,000.  Not  wishing  to  ask  anyone  to  endorse 
his  paper,  as  he  would  then  feel  under  obligation  to  return  the  favor,  he  offers  the 
bank  250  shares  of  stock  of  $100  each  in  the  Consolidated  Gas  Co.,  Kansas  City, 
which  they  can  hold  as  security.  The  bank,  being  thus  protected,  makes  the 
loan  upon  these  terms.  Mr.  Brown  will  deliver  to  the  bank  with  his  note  the 
stock  endorsed  in  blank.  If  the  note  be  paid  at  maturity  the  stock  will  be 
returned  to  Mr.  Brown.  If  not  paid,  the  stock  will  be  sold  and  the  proceeds  of  the 
sale  will  be  applied  in  settlement  of  the  note.  If  the  proceeds  from  the  sale  of 
the  stock  be  in  excess  of  the  loan,  such  excess  will  be  returned  to  Mr.  Brown. 
But  if  the  proceeds  be  not  sufficient  to  settle  the  loan  the  borrower  will  be  liable 
for  the  deficiency.     We  herewith  submit  two  forms  of  a  collateral  note: 

Collateral  Note. 
•  ♦♦♦♦»»♦♦♦♦♦♦♦♦♦♦♦♦♦  ♦♦>-♦--♦-  ♦  ♦  ♦  ♦  ♦-»--♦-  ♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦♦» 

$7000.                     Philadelphia^  Pa.^  Sept.  I^  IQ      .  -^ 

Sixty  days  after  date  I  promise  to  pay  to  the  order  of  4 

Second    National    Bank     of    Philadelphia^     Pa.,  \ 

Seven   Thousand^y^^^^^^^^^^^^^^s^^^^^^^^^^^^^^^^^^^y^^^^^^Dollars^  \ 


Value    R,eceived,    -ojUhout     Defalcation,    and    I  further    deliver  to    the   said  payee 

One  Hundred  and  Twenty- five  Shares  {$IOO  par) 
Capital  Stock  of  Pullma7i  Car  Co.,  Chicago,  III., 


as  collatei'al  security  for  the  payment  of  the  said  note  on  the  day  it  becomes  due,  -f 
luhich  collateral  I  hereby  atithori'ze  and  empower  the  holder  of  the  promissory  T 
note  {provided  the  same  be  not  paid  at  maturity)  to  sell  or  transfer  at  public  or  4. 
private  sale  without  further  reference  or  notice;  to  apply  the  proceeds  iti  payment  I" 
T  thereof  together  ivith  interest  and  charges  thereon;  thereafter  should  any 
deficiency  remain,  I  further  pro?nise  and  agree  to  pay  the  same  to  the  holder 
thereof  071  demand. 

Charles  Lee  Mann. 


58  FOR}r  OF  DRAFT  AXD  XOTE. 

CoLLATKHAr,    NoTK. 

$  23,000'^'^  CHiCACio,  III.,  Sept.    6,       19 

t^OllT'      tnOflt/lS  after  dale  J  promise  to  pay  to  the  order  o. 

Union  Trust  Company,  m  their  oii'tce  in  Chirago, 

Twe?ity-five   thousa?idr^.^.^s^.^.^s^.^.^.^.^^y.y^y^-.^.^^^.^.^.^.^^^o\-\-rKyK^, 

for  value  Received,  u-ith  interest  at  the  rate  of  0  per  cent  per  annum,  after  muturity  until  paid. 

Ira    Willis 

X       have  transferred  and  delivered  to  said  Union  Trust  Company,  as  Collateral  Security,  for  the  payment  of  this  and  of 
any  otherliabilities  of  the  undersigned  to  said  payee,  due  or  to  become  due ,  or  that  may  hereafter  he  contracted .  the  following 

property, value  of  which  is  Twenty-sBvefi  thousund  five  hundred  ^.^^^^nouars. 
viz:  Three  hundred  seventy- five  shares^  Chicago^  Milwau- 
kee &*  St.  Paul  Railroad  Stock.  Certificates:  No.  3114 
for  100  shares y  No.  3I15  for200  shares  and  No.  3476  for 
175  shares 

And  the  undersigned  hereby  give  the  said  payee  and  assigns  authority  to  sell  the  said  property,  or  any  partthereuf,  orany 
substitutes  therefor,  and  all  additions  thereto,  on  the  maturity  of  the  above  note,  or  any  time  thereafter,  or  before,  in  the 
event  of  the  said  security  depreciating  in  value,  at  any  public  or  private  sale,  without  advertising  the  same,  or  demanding 
payment  or  giving  notice,  with  the  right  to  said  payee  and  assigns  themseh-es  to  be  the  purchasers,  u-hen  sale  is  made  at 
any  brokers'  board  or  public  sale.  And  after  deducting  all  costs  and  expenses,  to  apply  the  residue  to  the  payment  of 
any,  either  en- cdl liabilities  as  aforesaid,  as  said  payee  or  assigns  shall  elect  returning  the  overplus  to  the  undersigned; 
and  in  case  the  proceeds  of  the  sale  of  said  property  shall  not  cover  the  principal,  interest  and  expenses,  the  undersigned 
engages  to  pay  the  deficiency  forthwith  after  such  sale,  u-ith  legal  interest. 

Ira    Willis 

CHAPTER  XVITT. 
FORM  OF  DRAFT  AND  NOTE. 

360.  Formality  Not  Required. — No  particular  form  of  words  is  essential  to 
constitute  a  bill  or  note.  All  that  is  necessary  is  that  such  instruments  contain 
the  essential  requisites  as  previously  explained. 

sei^Ye  give  a  detailed  analysis  of  the  following  forms  which  are  in  general 
use,  in  order  that  the  student  may  see  the  composition  or  make-up  of  a  draft  and 
note  from  the  beginning  of  the  date  to  the  completion  of  the  same  by  the  signing 
of  the  signature: 


FORM  OF  DRAFT  AND  NOTE.  59 

Form  1. — Foreign  Bill  of  Exchange.* — (Drawn  at  Sight.) 


Form  2. — Inland  Bill  of  Exchange. — (Drawn  at  Thirty  Days'  Sight.) 
£^-'l^P^^'^>^  Of   -''&</^^^p^.-lZ^  - ——.^ • 

Form  3.— Draft.  —  (Drawn  at  Thirty  Days  After  Date.) 


*Foreign  Bills  of  Exchange  are  usually  drawn  in  sets  of  two  or  three,  each  for  the  same  sum 
of  money,  but  so  worded  that  when  one  is  oaid  the  others  become  void. 


60  FORM  OF  DRAFT  AND  NOTE. 

Form  4. — Phomissory  Note. 

362.  Date  of  Making. — It  is  usual  that  the  draft  or  note  be  dated,  but  this  is 
not  one  of  the  essential  requisites  of  negotiability.  If  in  the  above  forms  the 
date  "Baltimore,  September  1,  19 — "  were  omitted,  the  instrument  would  still 
be  valid  negotiable  paper.  The  date  on  the  face  of  paper  is  prima  facie  evidence 
only  of  the  true  date.  By  prima  facie  evidence  is  meant  "such  evidence  as 
is  sufficient  to  establish  a  fact  unless  rebutted."  As  between  immediate  parties 
the  true  date  is  the  date  of  delivery,  although  the  paper  may  bear  a  date  which 
is  either  before  or  after  date  of  delivery.  As  to  remote  parties,  the  date  on  the 
instrument  governs. 

363PQJ.  illustration:  A  draws  a  draft  on  B  payable  to  C  three  months  after 
date.  The  draft  was  not  dated.  C  may  give  evidence  to  show  on  what  day  the 
draft  was  given  to  him,  and  that  day  will  then  be  the  true  date  of  the  draft. 

364.  Time  of  Payment. — 1.  At  Sight. — The  expression  "at  sight"  means  that 
the  draft  is  payable  when  presented  to  the  drawee.  In  Form  1,  the  drawee,  W. 
W.  Aument,  is  instructed  to  pay  the  bill  as  soon  as  the  payee,  William  J.  Harman, 
presents  it. 

^"^2.  At  Thirty  Daijs'  Sight. — This  means  that  the  draft  is  not  payable  on 
presentation,  but  thirty  days  after  presentation  and  acceptance.  In  Form  2, 
the  payee,  Chas.  L.  Wilson,  cannot  require  the  drawee,  E.  H.  Primrose,  to  pay 
until  thirty  days  after  it  has  been  presented  and  accepted. 

^""3.  At  Thirty  Days  After  Date. — When  a  draft  is  thus  drawn  it  need  not  be 
presented  for  acceptance,  because  the  drawee  is  ordered  to  pay  thirty  days  after 
the  date  of  the  draft,  and  not  thirty  days  after  acceptance;  hence,  when  thirty 
days  have  expired  it  is  payable,  whether  or  not  the  drawee  has  previously  seen 
the  draft.  While  these  drafts  do  not  require  acceptance  in  order  to  fix  the  date 
of  maturity,  yet  it  is  customary  to  present  them  for  acceptance,  in  order  that  the 
holder  may  ascertain  whether  or  not  the  drawee  will  honor  the  draft.  In  Form 
3,  the  drawee,  E.  H.  Primrose,  is  directed  to  pay  the  draft  October  1,  19 — . 


FORM  OF  DRAFT  AND  NOTE.  61 

^'M.  On  Demand. — When  the  time  of  payment  is  so  expressed  it  means 
within  a  reasonable  time,  which  depends  entirely  upon  the  circumstances  In  each 
case.  It  may  mean  one  day,  one  month,  three  months  or  a  year.  In  the  note 
as  indicated  by  Form  4,  E.  H.  Primrose's  promise  to  pay  on  demand  may  mean 
that  he  will  pay  the  note  in  one  hour,  one  day  or  one  month,  according  to  the 
intention  of  the  parties  and  the  circumstances  attending  the  giving  of  the 
note.  No  definite  rule  can  be  laid  down  as  to  the  exact  day  on  which  such  notes 
fall  due. 

368.  Payee. — This  is  the  party  who  is  to  receive  the  money,  or  the  person  in 
whose  favor  the  instrument  is  made.  He  should  be  pointed  out  with  certainty. 
In  Forms  2,  3  and  4,  Chas.  L.  Wilson  is  the  payee.  The  payee  of  a  bill  or  note  not 
payable  to  ''bearer"  must  be  an  existing  person  capable  of  being  ascertained  and 
identified  at  the  time  it  is  issued.  It  is  not  necessary  to  name  payee.  It  is 
sufficient  if  he  be  indicated  by  description  only,  and  when  so  designated  or  mis- 
named parol  evidence  is  admissible  to  identify  him.  "Pay  to  the  cashier  of 
Drovers  and  Mechanics'  National  Bank."  Evidence  is  admissible  to  show  that 
A  was  cashier  of  the  bank  when  the  draft  was  issued. 

369.  Amount. — The  amount  must  be  written  in  the  body  of  the  paper,  and 
if  expressed  in  figures  it  is  valid.  A  defect  where  the  intention  is  manifest  does 
not  vitiate*  the  paper,  i.  e.,  "One  Thousand  ''"/loo/'  has  been  held  to  mean  dollars. 
The  marginal  figures,  as  indicated  by  "$1000,"  is  no  part  of  the  instrument,  but  a 
mere  memorandum  which  may  aid  in  the  correct  construction  of  a  defective 
statement  of  the  amount  expressed  in  the  body;  i.  e.,  "One  Thousand"  written 
in  the  body  of  the  instrument,  with  no  figures  in  the  margin,  would  be  invalid, 
because  of  no  amount,  but  if  "$1000"  were  in  t-he  margin  it  would  cure  the  defect 
and  make  the  paper  valid. 

^'•'When  the  amount  expressed  in  the  body  of  the  paper  varies  from  that 
expressed  by  the  marginal  figures  the  former  will  hold  as  against  the  figures. 

371.  Consideration. — The  expressions  "value  received"  and  "value  received 
and  charge  to  my  account,"  although  usual,  are  not  necessary.  They  are  pure 
surplusage.*  Value  received  in  a  note  means  that  the  maker  has  received  value 
from  the  payee.  In  ?  bill  of  exchange  or  draft  payable  to  a  third  party  "value 
received"  means  that  the  drawer  has  received  value,  but  in  an  accepted  draft, 
payable  to  the  drawer's  order,  it  means  that  value  has  been  received  by  the 
acceptor.  A  note  given  by  A  to  B  is  expressed  to  be  given  for  "value  received." 
In  an  action  by  B  to  recover  from  A  the  latter  may  produce  evidence  to  show 
that  he  never  received  value,  or  that  the  consideration  wholly  failed,  rnd  thus 

♦Vitiate. — To  render  defective;  to  impair  or  destroy  the  validity  of  an  instrument. 
♦Surplusage. — Matter  in  an  instrument  that  is  not  necessary  to  its  meaning,  but  does  not  affect 
ite  validity. 


62  MATURITY. 

avoid  payment.  C,  the  drawer  and  payee  of  a  draft  expressed  to  be  for  "value 
received,"  sues  the  acceptor.  The  acceptor  may  show  that  the  draft  was  drawn 
and  accepted  for  C's  accommodation,  thereby  avoiding  payment. 

372.  Signature.— "Signature  means  the  writing  of  a  person's  name  on  the 
paper,  in  order  to  authenticate  and  give  effect  to  some  contract  thereon."  The 
name  of  the  maker  or  drawer  must  be  on  the  face  of  the  note  or  draft,  but  may 
be  in  any  part  of  the  paper  in  ink,  pencil,  stamps,  or  b}'  mark. 

373.  Drawee. — The  drawee  of  a  draft  must  be  designated  with  reasonable 
certainty.     If  the  draft  be  directed  to  where  a  person  lives  it  is  good  if  accepted 

by  that  person.     An  instrument  in  the  form  of  a  draft  addressed  "to ^ 

Washington,  D.  C,"  is  not  a  draft,  because  the  drawee  is  not  designated,  but  an 
instrument  in  the  form  of  a  draft  addressed  "To  No.  340  Pennsylvania  avenue, 
Washington,  D.  C,"  if  accepted  by  B.  E.  Windom,  Avhose  office  is  there,  becomes 
a  draft,  and  B.  E.  AVindom  is  liable  as  the  acceptor  thereof. 

374.  Time  of  Maturity. — The  "Negotiable  Instruments  Law"  provides  that 
every  negotiable  instrument  is  payable  at  the  time  fixed  therein,  without  grace. 
''^When  the  day  of  maturity  falls  upon  a  Sunday  or  a  holiday  the  instrument  is 
payable  the  next  succeeding  business  day.  ^^^Paper  falling  due  on  Saturday  is  to 
be  presented  for  payment  on  the  next  succeeding  business  day,  except  that  paper 
payable  "on  demand"  may,  at  the  option  of  the  holder,  be  presented  for  payment 
before  12  o'clock  noon  on  Saturday  when  the  entire  day  is  not  a  legal  holiday. 

377.  Time;  How  Computed. — When  the  instrument  is  payable  at  a  fixed 
period  after  date,  after  sight  or  after  the  happening  of  a  specified  event,  the  time 
of  payment  is  determined  by  excluding  the  day  from  which  the  time  is  to  begin 
to  run  and  including  the  date  of  payment. 

378.  Paper  Payable  at  Bank. — When  the  paper  is  made  payable  at  a  bank 
it  is  equivalent  to  an  order  to  the  bank  to  pay  the  same  for  the  account  of  the 
principal  debtor  thereon.  There  is  some  conflict  in  the  decisions  as  to  the 
authority  of  a  bank  to  pay  a  note  or  acceptance  made  payable  there.  The  above 
rule,  adopted  in  the  statute,  is  the  one  supported  by  the  weight  of  authority,  and 
is  also  the  rule  which  is  the  most  convenient  in  practice. 


CHAPTER  XIX. 

MATURITY. 

379.  Days  of  Grace. — These  are  three  days  allowed  to  the  acceptor  of  a  draft 
or  maker  of  a  note  in  which  to  make  payment  in  addition  to  the  time  contracted 
for  in  the  draft  or  note  itself.     They  are  allowed  on  all  drafts  and  notes  when  not 


MATURITY.  63 

expressly  excluded,  except  those  payable  on  demand,  whether  the  paper  is  nego- 
tiable or  not.  The  date  of  maturity  is  determined  by  excluding  the  day  from 
which  the  time  is  to  run  and  including  the  last  day.  When  the  time  is  expressed 
in  days  the  actual  number  of  days  is  counted.  When  expressed  in  months, 
calendar  months  are  meant.  To  illustrate;  A  note  dated  January  31,  payable 
in  one  month  without  grace,  is  due  February  28;  with  grace,  March  3.  A  similar 
note  dated  January  1  would  be  due  February  1.  If  days  of  grace  were  allowed 
three  more  days  would  be  added,  making  the  maturity  February  4.  A  note 
dated  January  1,  payable  in  thirty  days,  without  grace,  is  due  January  31.  A 
note  dated  February  1,  payable  in  thirty  days,  without  grace,  is  due  March  3. 

^^''Days  of  grace  have  been  abolished  except  on  sight  drafts  payable  in  Maine, 
Massachusetts  and  New  Hampshire,  in  the  following  States:  California,  Colorado. 
Connecticut,  District  of  Columbia,  Florida,  Idaho,  Illinois,  Maine,  Maryland, 
Massachusetts,  Montana,  New  Hampshire,  New  Jersey,  New  York,  North  Dakota, 
Ohio,  Oregon,  Pennsylvania,  Utah,  Vermont,  Wisconsin, 


CASES. 


(Give  reasons  for  answers.) 

1.  "Thirty  days  after  date  I  promise  to  pay  B,  or  order,  $.50.  A."  What  must  B  do  to 
transfer  his  right  and  title  in  the  note  to  a  third  party ?"'^ 

2.  "Ten  days  after  date  I  promise  to  pay  B  $100.  A."  B  assigns  the  note  to  C.  Can  C 
recover  of  A?^"* 

3.  Suppose,  in  the  above  case,  A  had  made  a  payment  to  B  of  $50,  which  had  not  been 
endorsed  on  the  note.     Would  that  have  any  effect  on  C's  right  to  recover ?'"'■  ^"^ 

4.  B  held  A's  promissory  note  made  payable  to  bearer  for  $1000.  While  on  his  way  to  the 
bank  B  lost  the  note,  which  was  found  by  C,  who  sold  it  to  D,  a  bona  fide  purchaser.  Can  D  recover 
of  the  maker,  A'!^^^ 

5.  Suppose,  in  Case  4,  the  note  was  not  negotiable;  would  that  affect  D's  right  to  recover?^'" 

6.  A,  in  consideration  of  his  friendship  and  esteem  for  B,  gave  the  latter  his  promissory 
note  payable  in  six  months.  The  note  was  expressed  to  be  given  for  "  value  received."  At 
maturity  B  sues  A.     Can  he  recover?^"-  ^'^ 

7.  Suppose,  in  Case  6,  B  had  sold  the  note  to  C,  who  was  a  bona  fide  purchaser.  Could  C 
recover  of  A?^'' 

8.  "  I  promise  to  pay  B  $100  ten  days  after  date.     A."     Is  this  a  negotiable  note?^* 

9.  "Thirty  days  after  date  I  promise  to  pay  B,  or  bearer,  $100.  A."  B,  without  endorse- 
ment, and  with  no  more  formality  than  if  it  were  a  book,  sold  the  note  to  C.  Can  C  recover  on 
the  note  in  his  own  name?^" 

10.  "Ninety  days  after  date  I  promise  to  pay  B,  or  order,  $100  in  goods  from  my  store." 
Is  this  a  negotiable  note?^'* 

11.  "In  one  month  after  my  return  from  Chicago  I  promise  to  pay  B,  or  order,  $100.  A." 
Is  this  note  negotiable  ?^^° 


64  ACCEPTANCE. 

12.  Suppose,  in  Case  1 1,  H  endorses  the  note  to  C.     WouKl  13  be  lialile  as  an  endorser?"' 

13.  "Six  months  after  date  I  promise  to  pay  B  the  entire  sum  I  now  owe  him."  Is  this 
note  valid?"' 

14.  "One  year  after  d.ito  I  promise  to  pay  B,  or  order,  ?10nO,  with  interest  the  same  as 
S!ivinp;s  hanks  pay."     Is  this  a  nepotialile  note?"' 

15.  "  I  owe  B  $100,  to  he  paid  on  Sept«ml)er  1,  1000."     Is  tliis  a  jiromis-sorv  note?"'-  ^^* 

16.  A  makes  a  note  payable  to  B,  or  order,  who  sues  him.  A  defends  him.self  by  sliowin.u; 
that  the  note  was  delivered  to  B  on  condition  that  it  was  onlj'  to  operate  sliould  he  cause  A  to  be 
restored  to  a  certain  position  or  office,  and  that  he  was  not  so  restored.  On  these  facts  can  B 
recover  of  A?'** 

17.  Suppose,  in  Case  16,  B  had  sold  the  note  to  C.     Could  C  recover  of  .\?'" 

18.  B  sues  \  on  a  note  bearing  dat«  on  Sunday.  B  proves  that  tlio  note  was  i.ssued  on 
Monday.     That  being  shown,  can  he  recover?^"' 

19.  "  .Vt  ten  days'  siglit  pay  C.  A.  Manning,  or  order.  One  Hundred 

value  received,  and  charge  to  the  accovuit  of 

"To  Chas.  L.  Wilson,  Jon.v  W.  Clark. 

'■  10  N.  Charles  street,  Philadelphia." 
Is  the  above  a  valid  draft ?^" 

20.  Suppose,  in  Case  19,  $100  were  superscribed  in  tlic  margin.  Would  that  be  sufficient 
to  supply  the  omission  and  constitute  it  a  valid  draft?"" 

21.  "At  sight  pay  to  the  administrator  of  B,  deceased."  Is  the  payee  sufficiently  ilesig- 
nated  to  constitute  a  valid  draft ?'** 

22.  "Nine  months  after  date  I  promise  to  pay  B,  or  order,  SI 00  and  reasonable  attorney's 
fees,  if  suit  is  necessary  to  collect  the  same.     A."     Is  this  a  negotiable  note?'*' 


CHAPTER  XX. 
ACCEPTANCE. 

381.  How  Drawee  Is  Made  Liable. — Acceptance  applies  to  bills  of  exchange 
or  drafts  only.  He  who  draws  the  draft,  called  the  drawer,  promises  the  payee 
that  the  drawee  will,  when  requested,  accept  the  draft,  and,  if  the  drawee  does 
not,  he  (the  drawer)  will,  if  duly  notified,  redeem  it.  The  request,  made  for  this 
purpose  by  the  payee,  or  holder,  of  the  drawee,  is  called  a  "presentment  or 
acceptance."  If  the  drawee  is  willing  to  comply  with  the  conditions  of  the  draft 
and  honor  it  he  can  so  express  his  intention  by  giving  either  a  written  or  verbal 
acceptance. 

382.  Written. — It  is  a  universal  custom  to  accept  drafts  by  writing  across 
the  face  of  the  draft  the  word  "accepted,"  also  date  and  signature  of  the  drawee. 
But  that  formality  is  not  necessary;  "seen,"  "honored,"  "presented,"  "I  will 
pay  the  draft,"  or  drawee's  name  only  is  sufficient.  The  drawee  may  use  any 
form  of  words  from  which  the  intention  to  accept  may  be  gathered.  ^^^The 
acceptance  may  be  on  a  separate  piece  of  paper.     A  draws  a  draft  on  B.     After 


ACCEPTANCE.  66 

it  is  received  by  C,  the  payee,  B,  writes  to  A,  promising  to  pay  the  draft.  This 
is  an  acceptance  and  enures  to  the  benefit  of  C  and  all  subsequent  holders. 

384.  Verbal. — In  the  United  States  it  is  well  settled  that  in  the  absence  of 
statutory  regulations  forbidding  it  a  verbal  acceptance  of  a  draft  is  valid  and 
binding.  In  New  York  and  California  acceptances  are  required  by  statute  to  be 
in  writing.  Similar  statutes  have  been  passed  in  Alabama,  Arkansas,  Kansas, 
Maine,  Michigan,  Minnesota,  Oregon  and  Wisconsin. 

sssfcpjjg  Negotiable  Instruments  Law"  requires  all  acceptances  to  be  in 
writing,  but  does  not  require  the  acceptance  to  be  written  on  the  bill,  as  is  shown 
in  the  following  paragraph: 

386.  Written  Promise  to  Accept. — A  letter  written  or  a  telegram  sent  within 
a  reasonable  time  before  or  after  a  draft  is  drawn,  describing  it  so  as  to  distin- 
guish it  from  any  other,  and  promising  to  accept  it,  is,  if  shown  to  anyone  who 
takes  the  draft  on  the  faith  of  the  letter  or  telegram,  a  virtual  acceptance,  binding 
on  the  person  making  the  promise.  This  applies  only  to  drafts  drawn  at  sight 
or  at  a  certain  number  of  days  from  date,  and  not  to  those  drawn  at  a 
certain  number  of  days  after  sight.  B  writes  to  A,  "I  have  no  objections 
to  accepting  a  draft  for  you  drawn  at  three  or  four  months  for  $2500." 
B  will  be  liable  as  acceptor  on  a  draft  for  $2500  drawn  in  pursuance  of  the 
authority  given. 

387.  Who  May  Accept. — The  acceptance  should  be  made  by  the  drawee  or 
his  duly  authorized  agent.  If  a  draft  be  addressed  to  a  partnership  or  firm,  an 
acceptance  by  one  of  the  partners  in  the  name  of  the  firm  is  sufficient.  When 
the  place  for  the  name  of  the  drawee  is  blank,  anyone  who  accepts  it  acknowl- 
edges himself  to  be  the  drawee  intended. 

388.  When  Acceptance  May  Be  Made. — A  draft  may  be  accepted:  (1)  Before 
it  has  been  signed  by  the  drawer;  (2)  After  it  is  overdue;  (3)  After  it  has  been 
dishonored  by  a  previous  refusal  to  accept,  or  by  non-payment,  followed  bv 
protest.  The  holder  of  a  draft,  payable  one  month  after  sight,  presents  it  to 
the  drawee  for  acceptance,  which  is  refused.  A  week  after  it  is  re-presented  and 
accepted.  The  acceptance  is  valid.  ^^^If  the  drawee  should  desire  it,  the  draft 
may  be  left  with  him  twenty-four  hours,  in  order  to  enable  him  to  examine  his 
account  with  the  drawer  and  determine  whether  or  not  he  wishes  to  accept  it. 
After  the  expiration  of  this  time  he  must  return  it  accepted  or  unaccepted.  If 
not  returned  the  law  presumes  that  it  has  been  accepted. 

390.  General  and  Qualified  Acceptance. — The  acceptance  may  be  general, 
i.  e.,  in  conformity  with  the  terms  of  the  draft,  or  qualified,  i.  e.,  one  which  varies 
the  effect  of  the  draft  as  drawn.  The  acceptance  may  be  qualified  in  any  of  the 
following  four  ways: 

1.  As  TO  Amount.— A  draws  a  draft  on  B  for  $100,     B  accepts  it  as  to  $50. 


66 


ACCEPTANCE. 


2.  As  TO  Time. — A  draws  a  draft  on  B  payable  at  sight.  B  accepts  it  "pay- 
able in  ten  days." 

3.  As  TO  Number  of  Acceptors. — A  draft  is  drawn  on  (',  I)  and  E.  C 
accepts,  but  D  and  E  refuse. 

4.  Imposing  a  Condition. — The  drawee  of  a  draft  accepts  it  thus:  "Ac- 
cepted— Payable  when  I  have  sufficient  funds  in  my  possession  belonging  to  the 
drawer." 

391.  Effect  of  Qualified  Acceptance. — The  holder  of  a  draft  need  not  consent 
to  receive  a  qualified  acceptance.  He  has  a  right  to,  and  can  demand,  an  abso- 
l.'.te  or  general  acceptance.  If  he  consents  to  a  qualified  acceptance,  it  is  valid 
and  ]>inding  as  against  the  acceptor  and  all  subsecjuent  parties  and  all  prior 
parties  (drawer  and  endorsers)  who  assent  thereto.  But  prior  parties  who  do 
not  assent  to  the  qualified  acceptance  are  discharged  from  further  liability. 

^'-Suppose  E.  P.  Ewers  owes  L.  H.  Young  S500,  and  gives  him  the  following 
draft  on  J.  A.  Lyons,  who  accepts  it  as  illustrated  below: 


QuALii'iED  Acceptance. 


7^^ 


^i^z^-z-c-^^-z-^^^ 


/^^.f-'^^^ic^ 


O'-T^t^^C^i 


'(^^(£: 


1-i>c^-oL<d^, 


-t^c^i^^ 


^^/ 


^"^If  J.  A.  Lyons  has  $500  belonging  to  the  drawer,  the  payee,  L.  H.  Young, 
can  enforce  payment,  but  otherwise  he  cannot.  L.  H.  Young,  having  consented 
to  the  acceptance  so  qualified,  releases  E.  P.  Ewers,  and  the  debt  he  owed  is  dis- 
charged.    Should  he  fail  to  recover  of  J.  A.  Lyons  he  will  lose  the  entire  amount. 

^"^If  the  acceptance  had  been  written  thus:  "Accepted  September  4,  19 — . 
Will  pay  $300  of  the  within.  J.  A.  Lyons" — then  L.  H.  Young  would  be  entitled 
to  recover  $300,  and  no  more.  If  for  some  reason  J.  A.  Lyons  could  make  no 
payment,  L.  H.  Young,  as  in  the  other  case,  would  lose  it  all. 


ENDORSEMENTS. 


67 


ANALYSIS  OF  DRAFTS  AND  NOTES. 


u 

H 

o 
z 

Q 

z 

H 

< 
Gi 
Q 


9     Endorsements. 


Blank. 

Full. 

Qualified. 

Conditional. 

Restrictive. 


f  1.    Surety. 

Person  putting  name  on  back  of  paper  may  be j  2.     Maker. 

[  3      Guarantor 

1 .  Drawee — as  to  drawer. 

2.  Drawee — as  to  holder. 

3.  Acceptor. 


4     Acceptor's  estoppels. 


11.    Contracts  and  liabilities.  ^ 


Drawer. 
Endorser. 


f  1.  Admits  existence  of  drawer. 

J  2.  Admits  genuineness  of  drawer's  signature. 

]  3.  Admits  capacity  of  drawer  to  draw. 

\  4.  Admits  that  he  has  sufficient  funds 


7.    Endorser's  estoppels. 


i'  1.    Admits  bill  or  note  to  be  genuine. 
J  2.     Admits  bill  or  note  to  be  vaUd. 
]  3.     Admits  that  prior  parties  had  capacity. 
[  4.     Admits  that  he  has  a  good  title. 
Endorser  "without   recourse"  and  holder  delivering  negotiable  paper 
which  passes  by  delivery. 


Conditions  of  drawer's 
and  endorser's  liability. 


1.    Due  presentment  for  acceptance  .. 


1.  What  drafts  necessary. 

2.  Time  of. 

3.  By  whom. 
I  4.  To  whom. 

Due  demand  for  payment {  i"  pj"^^    c 


3.    Due  notice  of  dishonor 


[1: 


Comprises. 
As  evidence. 


13. 


Due  presentment,  demand,  protest 
and  notice  excused , 


14.    Bona  fide  holder. 


1. 
2. 

II.    Checks <!  ?• 

4. 


1.  Protest  . . 

2.  By  whom- 

3.  To  whom. 

4.  Method  of. 

5-  Time  within  which  to  be  given. 

6.  Form  of. 

'  1.  By  circumstances  of  general  nature  which  interrupt 

,  business. 

1  2.  When  drawer  has  no  funds  in  possession  of  drawee. 

I,  3.  By  waiver  of  protest  and  notice. 

.  f  1.    Bona  fide 

1.     To  constitute  one  such  must  2      For  valuable  consideration. 

receive  paper J  .3.     Befcne  maturity. 

4.     L'Kual  course  of  bu.=iness. 
I  5.    Without  notice  of  defects. 
.  r  1 .    Incapacitv  of  parties. 

l.    Defenses  against |  2      Illegal  consideration, 

L  3.    Want  of  consent. 

Howthey  differ  from  drafts, 
liability  of  endorser. 
Liaoility  of  drawer. 
Time  of  den^and  fot  payment. 


5.    Certified 


1.  By  whom. 

2.  Effect  of. 


III.  Certificate  of  depoiit. 

IV.  Accommodation  paper. 
V.  Lost  bills  and  notes. 

VI.  limitations. 


1.  Makes  bank  principal  debtor 

2.  Discharges  drawer. 

3.  Makes  it  circulate  as  cash. 


68  ENDORSEMENTS. 

CHAPTER  XXI. 
ENDORSEMENTS. 

395.  Definition  and  Purpose. — An  endorsement  is  "anything  \NTitten  on  the 
hack  of  an  instrument  which  relates  to  that  instrument."  It  is  generally  made 
for  a  twofold  purpose:  First,  to  transfer  the  title  of  the  instrument;  and  second, 
to  give  additional  security  for  payment.  It  is  only  negotiable  paper  that  is 
subject  to  endorsement.  Therefore,  if  for  some  reason  a  note  is  non-negotiable 
the  title  cannot  pass  by  endorsement,  nor,  as  previously  stated,  is  the  endorser 
conditionally  liable  for  the  payment  of  such  paper,  ^no-^yj^gj^  ^l^g  bill  or  note  is 
made  payable  to  bearer,  or  when  payable  to  order  and  endorsed  in  blank,  the 
title  to  the  paper  will  pass  by  delivery,  the  same  as  a  party  would  pass  title  to 
a  SIO  bill.  The  party  who  makes  the  endorsement  is  called  the  endorser,  and 
the  one  in  whose  favor  it  is  made,  or  to  whom  the  paper  is  transferred,  is  called 
the  endorsee.  B,  the  payee  of  a  note,  endorsed  it  to  C.  B  is  the  endorser  and 
C  the  endorsee.  It  is  now  our  purpose  to  consider  the  different  kinds  of  endorse- 
ments, which  are  five  in  number:  1.  Blank;  2.  Full;  3.  Qualified;  4.  Con- 
ditional; 5.  Restrictive. 

The  holder  may,  in  order  to  suit  the  circumstances  under  w^hich  the  paper  is 
transferred,  select  any  one  of  the  endorsements  he  prefers.  They  apply  equally 
to  all  classes  of  negotiable  paper,  i.  e.,  notes,  checks,  drafts,  certificates  of  deposit, 
ntc.  For  simplicity  we  submit  the  following  note  as  a  basis  on  which  to  explain 
the  rules  applicable  to  the  several  kinds  of  endorsements: 


397.  Blank. — L.  M.  Hance,  the  payee  in  the  above  note,  transfers  it  to  N.  0. 
Burnap.  As  the  note  contains  the  words  "to  the  order  of,"  transfer  can  be  made 
onlv  by  an  endorsement  and  delivery.     We  will  suppose  the  payee  uses  a  blank 


ENDORSEMENTS. 


69 


Blank  Endorsement. 


or  general  endorsement.     In  so  doing  he  would  simply  write  his  name  on  the  back 

of  the  note  as  illustrated.     ^^^A  blank  endorsement  has 
the  effect  of  making  the  paper  payable  to  bearer,  even 
though  the  note  is  made  payable  to  the  payee  or  order; 
L.  M,  Hance.  therefore,  anyone  who  holds  a  note  endorsed  in  blank 

is  presumed  to  be  the  owner  thereof.  If  the  endorsee, 
N.  0.  Burnap,  wishes  to  transfer  the  note,  he  can  do 
so  by  simply  passing  it  to  another,  the  same  as  if  it  were  a  bank  bill.  ^®'*There  is 
a  very  wise  and  just  provision  in  law  which  allows  the  holder  of  commercial  paper 
endorsed  in  blank  to  change  it  to  an  endorsement  in  full.  This  is  allowed  because 
it  does  not  in  any  way  affect  the  contract  or  liability  of  the  endorser,  and  protects 
the  endorsee  or  holder  against  danger  of  its  being  lost  or  stolen.  As  in  the  illus- 
tration, the  endorsee,  N.  0.  Burnap,  may  convert  the  blank  to  a  full  endorsement 
by  writing  above  L.  M.  Hance's  name,  "Pay  to  N.  O.  Buraap,  or  order." 

400.  Full. —  A  full  or  special  endorsement  is  one  which  menti:n3  the  name  of 
the  endorsee,  with  a  direction  to  pay  him.  From  the  definition,  it  will  be  noticed 
that  "order"  is  not  necessary  in  an  endorsement  in  full.  The  draft  or  note  is  still 
negotiable  without  it.  Students  should  note  the  following  distinction :  On  the  face 
of  the  draft  or  note  "or  order"  or  "or  bearer"  is  necessary  to  make  it  negotiable. 
In  an  endorsement  they  are  not  necessary.    Either  form  as  shown  in  the  illustration 

is  a  full  endorsement.  The  endorsee,  JN.  0.  Burnap 
can  negotiate  the  note  only  by  his  endorsement,  and 
until  endorsed  he  only  can  legally  demand  payment. 
For  this  reason  this  kind  of  endorsement  is  generally 
adopted  among  business  men,  because  of  the  safety 
which  it  ensures  in  the  transmission  of  negotiable  paper. 
^°^If  commercial  paper  was  orginpUy  payable  to  "order,"  and  has  been 
endorsed  in  blank  and  afterward?  ^'n  full,  it  is  still  payable  to  bearer  and  transfer- 
able by  delivery.  In  such  a  case  ihe  transferee  acquires  a  title  through  the  blank 
endorsement,  which  in  all  cases  makes  the  paper  payable  to  bearer.  The  party 
making  the  full  endorsement  is  only  liable  on  his  endorsement  to  such  parties  as 
make  title  through  it.     Suppose  L.  M.  Hance,  the  payee,  endorses  it  in  blank,  and 

transfers  it  to  N.  O.  Burnap,  who  endorses  it  in  full  to 
J.  N.  Roe.  J.  N.  Roe,  without  endorsement,  transfers 
it  to  R.  C.  Doe.  R.  C  Doe,  having  acquired  his  title 
through  L.  M.  Hance's  blank  endorsement,  is  entitled 
as  bearer  to  receive  payment,  and  for  such  can  look 
only  to  the  maker,  C.  J.  Harmer,  and  L.  M.  Hance,  the 
first  endorser.  N.  0.  Burnap,  although  an  endorser,  is  not  liable  as  such,  because 
R.  C.  Doe  did  not  make  title  through  his  endorsement.     J.  N.  Roe  is  not  liable; 


Full  Endorsement. 


Pay  to  N.  0.  Burnap 

or  order, 

L.  M.  Hance. 

Pay  to  N.  0.  Burnap. 

L.  M.  Hance. 


Blank  and  Full. 


L.  M.  Hance, 
I  ay  to  J.  N.  Roe  or 
order. 
N.  0.  Burnap. 


70  ENDORSEMEXTS 

because  he  did  not  endorse  the  note.     It  is  true,  his  name  appears  on  the  back  of 
^e  note,  but  not  as  an  endorser. 

402.  Qualified. — A  qualified  endorsement  is  one  which  limits  the  ordinary 
liability  of  the  endorser.  It  relates  only  to  the  endorser's  liability,  and  does  not 
otherwise  affect  the  negotiation  of  the  paper  thus  endorsed.     We  will  suppose 

Qualified  Endorsement.  ^^^^  ^-  ^^-  ^^"^^'  ^^<^  P^^"^'  ^"  transferring  the  note, 

uses  a*  qualified  endorsement,  as  illustrated.     By  so 


Pay  to  .V.  0.  Bumap  or 

order, 

without  recourse. 

L.  M.  Hance. 


doing  he  passes  his  interest  in  the  note  to  N.  O.  Burnap 
the  endorsee,  but  incurs  no  liability  as  an  endorser. 
It  is  held  in  America  that  an  endorser  "without  re- 
course" is  responsible  to  the  same  extent  that  a  trans- 
ferer by  delivery  is  responsible.  That  is,  notwithstanding  the  qualified  endorse- 
ment, if  the  maker's  name  was  a  forgery,  L.  M.  Hance  would  be  liable  to  N.  O. 
Burnap.  More  will  be  said  on  this  subject  under  the  head  of  "Contracts  and 
Liabilities  of  the  Parties." 

403.  Conditional. — A  conditional  endorsement  is  one  that  transfers  the  title 
Conditional  Endorsement.  to  the  paper  to  the  endorsee  subject  to  the  fulfillment 

of  a  condition  therein  stated,  as  shown  in  the  illustra- 


Pay  to  N.  0.  Bumap  or 
order  upon  my  election 
to  the  Presidency  of  the 
B.  &  0.  R.  R. 

L.  M.  Hance. 


tion.  '**"0n  the  failure  of  the  condition  the  title  in  the 
paper  reverts  to  the  endorser,  to  whom  the  paper 
should  be  returned. 


*°^Where  the  endorsement  is  conditional  a  party  may  disregard  the  condition 
and  make  payment  to  the  endorsee  or  his  transferee,  whether  the  condition  has 
been  fulfilled  or  not.  ^^^But  any  person  to  whom  an  instrument  is  thus  negotiated 
will  hold  the  same  or  the  proceeds  thereof,  subject  to  the  rights  of  the  person 
endorsing  conditionally.  As  shown  in  the  illustration,  L.  M.  Hance  makes  a  con- 
ditional endorsement  to  N.  0.  Burnap.  At  maturity  paN'ment  is  made  to  N.  O. 
Burnap,  although  the  condition  has  not  been  fulfilled.  The  maker  is  discharged 
from  further  liability.  But  L.  M.  Hance,  the  endorsee,  can  compel  N.  O.  Burnap 
to  account  to  him  for  the  proceeds  thus  received. 

407.  Restrictive. —  A  restrictive*  endorsement  constitutes  the  endorsee  the 
holder  of  the  paper,  but  expresses  that  he  is  not  the  beneficial  owner  of  it.  That 
is,  the  ownership  of  the  paper  is  not  transferred.  It  also  destroys  the  negotiable 
qualities  of  the  instrument. 

*°*A11  of  the  following  forms  are  restrictive  endorsements.  The  endorsee,  N. 
0.  Burnap,  is  simply  the  agent  of  the  endorser  for  the  purpose  of  collecting  the 
money;  he  cannot  himself  endorse  the  paper  unless  authorized  to  do  so  by  nego- 


♦Reetrictive. — Having  the  power  to  limit;  to  confine. 


ENDORSEMENTS. 


71 


tiable  words,  as  shown  in  the  two  hitter  forms,  and  when  endorsed  the  paper 
passes  to  the  endorsee  subject  to  the  trust  imposed  by  the  restrictive  words,  which 
operate  as  notice  to  every  subsequent  holder.  As  illustrated  in  the  form  for  col- 
lection, suppose  N.  O.  Burnap  sold  the  note  to  J.  N.  Roe,  who  took  the  note  in 
good  faith.  At  maturity  J.  N.  Roe  collects  the  money,  and  claims  it  as  his,  as  he 
had  given  value  for  the  note.  Notwithstanding  this  fact,  L.  M.  Hance  can  com- 
pel J.  N.  Roe  to  account  to  him  for  the  money  received,  because  the  note,  under 
a  restrictive  endorsement,  passes  subject  to  all  the  rights  and  claims  as  between 
L.  M.  Hance,  the  endorser,  and  N.  O.  Burnap,  the  endorsee. 


Restrictive. 


Pay  to  N.  0.  Burnap 
only. 
L.  M.  Hance. 


Restrictive. 


Pay  to  N .  O.  Burnap, 
for  my  use. 

L.  M.  Hance. 


Restrictive. 


Pay  to  N.  0.  Burnap  or 

order,  for  the  use  of 

J.  N.  Roe. 

L.  M.  Hance. 


Restrictive. 


Pay  to  N.  O.  Burnap  or 
order,  for  collection. 

L.  M.  Hance. 


409.  Liability  of  Irregular  Endorser. — On  this  subject  the  decisions  are  con- 
flicting. The  "Negotiable  Instruments  Law,"  however,  defines  the  liability  of 
such  endorsers,  so  that  hereafter  their  liability  will  be  the  same  in  all  jurisdictions. 
^^''Where  a  person,  not  a  party  to  the  instrument,  places  thereon  his  signature  in 
blank  before  delivery,  he  incurs  all  the  liabilities  of  an  endorser.  Thus,  one  who 
endorses  a  negotiable  instrument  before  it  is  delivered  to  the  payee  is  liable  to  the 
payee  thereon  as  an  endorser,  and  not  as  a  surety*  or  guarantor.*  Illustrations: 
\.  Note  made  by  A,  payable  to  B,  or  order,  endorsed  by  C,  and  then  delivered  to 
the  payee,  B.  C  is  liable  as  an  endorser  to  B.  2.  Note  made  by  A,  payable  to 
himself,  or  order,  endorsed  by  B,  and  delivered  to  C.  B  is  liable  as  an  endorser 
to  C,  but  not  to  A.  3.  Note  made  by  A,  payable  to  B,  or  order,  endorsed  by  C 
before  B,  but  for  accommodation  of  B,  and  discounted  by  Bank  of  X.  C  is  liable 
to  Bank  of  X,  and  not  to  B. 


*Surety. — One  who  agrees  to  answer  for  the  payment  of  another's  debt. 
*Guarantor. — One  who  makes  a  guaranty. 


72  ENDORSEMENTS 

411.  Endorsement  where  Name  is  Misspelled. — When  the  name  of  a  payee  or 
endorsee  is  wrongly  designated  or  misspelled  he  may  endorse  the  paper  as  therein 
described  or  spoiled,  adding,  if  he  think  fit,  his  proper  signature. 

412.  Endorsement  by  Infant  or  Corporation. — The  endorsement  by  an  infant 
or  corporation  of  the  paper  passes  the  title  therein,  notwithstanding  that  from 
want  of  capacity  the  infant  or  corporation  may  incur  no  liability  thereof. 


CASES. 


(Give  reasons  for  answers.) 

23.  A  draws  a  draft  on  B.  If  B  writes  thereon,  "Presented,"  "Seen,"  "Honored,"  or 
merely  his  name,  would  it  be  a  valid  acceptance ?^*^ 

2-1.  B  writes  to  A:  "I  authorize  you  to  draw  on  me  at  ninety  days  from  date  for  $.300  in 
favor  of  C."  A  draws  the  draft  in  puosuance  of  the  autliority  given.  At  maturity  B  had  no 
money  belonging  to  A,  and  hence  refused  payment.  C  then  sued  B  on  his  acceptance.  Can 
he  recover ?^^ 

25.  A  draws  a  draft  on  B.  The  payee,  C,  presents  it  to  D,  who,  ahhough  not  the  drawee, 
writes  an  acceptance  on  it.     At  maturity  C  sues  D  on  his  acceptance.     Can  he  succeed?^ 

26.  A  draft  is  addressed  to  B  &  Co.  E,  a  partner  in  the  firm,  accepts  it  in  his  own  name. 
The  payee  sues  the  firm  on  the  acceptance.     Can  he  succeed?^' 

27.  A  draws  a  draft  for  $500  on  B,  who  writes  thereon,  "  I  will  pay  $300  of  the  within.  B." 
Subseqiiently  B  becomes  insolvent.     The  payee  then  seeks  to  hold  A  liable.     Can  he  succeed?^** 

28.  A  owes,  C  $1000,  and  gives  him  a  draft  on  B  for  the  amount.  B  writes  on  the  draft 
"Good,  and  will  be  paid  as  soon  as  I  sell  the  wheat  belonging  to  A."  After  unsuccessful  efforts 
to  collect  of  tJie  acceptor,  C  sues  A  for  the  $1000.     Can  he  recover?^** 

29.  A  draft  is  drawn  payable  to  C,  or  order.  C  endorses  it  to  D  thus:  "Pay  the  contents 
to  D,"  omitting  to  add  the  words  "  or  order."     Is  the  draft  still  negotiable?^"" 

30.  "One  year  after  date  I  promise  to  pay  C  $100,  value  received.  B."  C  endorses  the 
note  to  D.     D,  being  unable  to  recover  of  B,  seeks  to  hold  C,  the  endorser.     Can  he  succeed?^"* 

31.  C  endorses  a  draft  to  D  by  way  of  a  gift.     Is  C  Hable  to  D  as  an  endorser?"^ 

32.  D,  the  holder  of  a  note  endorsed  in  blank  by  C,  writes  over  C's  signature,  "  Pay  to  D, 
or  order."  C  refuses  payment,  because  of  the  alteration  of  his  endorsement.  Is  his  defense 
good?™* 

33.  C,  the  payee  of  a  draft  made  payable  to  his  order,  endorses  it  in  blank  and  transfers 
it  to  D.  D  endorses  it  to  E,  or  order.  E,  without  endorsing  it,  transfers  it  to  F.  Is  F  entitled, 
as  bearer,  to  receive  payment?^*" 

34.  In  Case  33,  are  C,  D  and  E  liable  as  endorsers?*"' 

35.  C,  the  payee  of  a  note,  endorsed  it  to  D  "without  recourse."  D  endorsed  it  to  E  in 
blank.     E  seeks  to  hold  D  and  C  liable  as  endorsers.     Can  he  succeed?*"' 

36.  C,  the  payee  of  a  note,  endorses  it  to  D  thus:  "Pay  D,  or  order,  if  he  be  attending  a 
business  college.  C."  The  maker  of  the  note  paid  the  money  to  D,  although  the  latter  was  not 
attending  a  business  college.     C,  the  payee  and  endorser,  brought  an  action  to  recover  the 


CONTRACTS  AND  LI  ABILITIES  OF  1  HM  PARTIES  73 

amount  of  the  note  of  the  maker,  l)e('uuse  payment  was  made  contrary  to  the  condition.     Can 
he  succeed ?^''^ 

37.  C  endorses  a  draft  tlius:  "Pay  D  only."     D  endorses  it  to  E,  who  gave  value  for  it. 
Can  E  recover?^"* 

38.  In  Case  37,  C  sued  E  to  recover  the  money  which  E  received  in  settlement  of  the  draft. 
Can  he  succeed?*"' 

39.  C  endorsed  a  note  thus:  "Pay  D,  or  order,  only."     D  endorses  it  to  E.     Is  E  entitled 
to  recover  of  the  maker ?*''^ 


CHAPTER  XXII. 
CONTRACTS  AND  LIABILITIES  OF  THE  PARTIES. 

413.  Topics  Presented. — The  student  will  have  a  clearer  and  more  compre- 
hensive understanding  of  the  subject,  as  we  advance,  if  he  will  keep  in  mind  the 
topics  that  have  been  presented.  Thus  far  we  have  considered  the  difference 
between  negotiable  paper  and  choses  in  action,  more  commonly  called  non-nego- 
tiable, paper,  the  seven  essential  requisites  of  negotiability,  the  form,  the  accept- 
ance and  negotiation  or  endorsement  of  drafts  and  notes.  We  will  now  consider 
the  contracts  of  the  parties  and  the  liabilities  arising  under  them. 

414.  Drawee's  Liability — As  to  Drawer. — The  drawee  is  not  legally  bound  to 
accept  the  draft,  although  he  be  indebted  to  the  drawer,  unless  he  has  expressly 
or  impHedly  agreed  to  do  so.  The  exception  to  this  rule  is  in  case  a  check  is  dis- 
honored* by  a  bank  when  the  drawer  has  sufficient  funds  in  the  bank  for  its  pay- 
ment when  presented.  Under  these  circumstances  the  depositor  may  bring  an 
action  against  the  bank  for  damages  to  his  commercial  credit. 

415.  Drawee's  Liability — As  to  Holder. — The  drawee  is  in  no  privity  of  con- 
tract with  the  holder,  and  incurs  no  liability  to  him  on  a  refusal  to  accept  a  draft. 
A  having  $100  as  his  bankers,  draws  a  check  on  them  for  that  sum  in  favor  of  C. 
The  check,  when  presented,  is  dishonored.     C  has  no  remedy  against  the  bankers. 

416.  Acceptor's  Liability. — The  only  way  to  fasten  the  drawee's  liability  to  a 
draft  is  through  his  acceptance.  By  his  acceptance  he  promises  to  pay  the  payee 
or  any  subsequent  holder,  according  to  the  ijieaning  of  the  acceptance,  and  there- 
by becomes  the  primary  and  principal  debtor  on  the  draft. 

417.  Acceptor's  Estoppels.* — The  acceptor,  by  the  fact  of  the  acceptance, 
conclusively  admits  and  warrants  "to  a  bona  fide  holder  the  following: 

♦Dishonored. — Payment  or  acceptance  refused. 

*Estoppels. — Conclusive  admissions  which  cannot  be  denied  or  controverted. 


74  CONTRACTS  AXD  LIABILITIES  OF  THE  PARTIES. 

1.  The  exLstence  of  tlie  drawer. 

2.  The  genuineness  of  the  drawer's  signature. 

3.  The  capacity  and  authority  of  the  drawer  to  draw. 
•4.  That  he  (the  drawee)  has  sufficient  funds. 

"^Therefore,  the  acceptor  cannot,  in  order  to  avoid  payment,  set  up  as  a 
defense  against  such  a  holder  that  the  drawer's  signature  is  a  forgery,  that  he  has 
no  funds  of  the  drawer,  that  the  drawer  was  an  infant  or  a  married  woman,  or 
insane,  or  that  the  drawer  had  no  authority  to  draw.  Suppose,  for  illustration, 
a  draft  purporting  to  be  drawn  by  A  on  B  in  favor  of  C  is  accepted  by  B  and 
then  negotiated.  B,  the  acceptor,  cannot,  in  order  to  free  himself  from  liability, 
set  up  as  a  defense  that  A's  signature  is  a  forgery,  or  that  A  was  an  infant,  and, 
therefore,  had  no  capacity  to  draw.  Suppose  A  draws  a  draft  on  B  in  favor  of 
C.  C  alters  the  amount  from  $10  to  $100,  and  then  endorses  it  to  D.  B  subse- 
quently accepts  it.  B,  notwithstanding  his  acceptance,  may  set  up  the  alteration 
as  a  defense,  and  thus  avoid  payment.  The  student  will  observe  that  the 
acceptor  does  not  warrant  the  genuineness  of  the  amount. 

419.  Drawer's  Liability. — The  general  liabilities  of  the  drawer  are  secondary 
and  conditional.  He  contracts  that  the  draft  shall  be  accepted  or  paid  by  the 
drawee  on  due  presentment,  and,  if  not,  he  will  indemnify  the  holder,  provided 
due  notice  of  its  dishonor  be  given  him. 

420.  Endorser's  Liability. — The  endorser's  liability  is  also  secondary  and 
conditional.  He  contracts  that  the  draft  or  note  shall  be  accepted  or  paid 
according  to  its  tenor  on  due  presentment  and  demand  for  payment,  and,  if  not,  he 
will  indemnify  the  holder  if  due  notice  of  its  dishonor  be  given  him. 

421.  Endorser's  Estoppels. — The  endorser  of  negotiable  paper,  by  the  fact  of 
endorsing  it,  conclusively  admits  and  warrants  to  a  bona  fide  holder  the  following: 

1.  That  the  paper  is  genuine,  i.  e.,  that  no  signatures  on  the  paper  are  forged, 
and  that  it  has  not  been  altered. 

2.  That  it  is  a  valid  and  subsisting*  instrument,  i.  e.,  not  void  because  of 
usury,  illegal  consideration,  etc. 

3.  That  prior  parties  had  capacity  and  authority,  and  that  he  has  a  good  title 
thereto. 

"^Suppose  the  holder  sues  D,  an  endorser  of  a  note,  and  D  sets  up  as  a 
defense  that  the  maker  of  the  note  was  an  infant,  or  that  the  maker's  name  was 
forged,  or  that  the  amount  of  the  note  was  raised  from  $10  to  $110.  Even  though 
D  establishes  any  one  or  all  of  the  above  facts  it  will  avail  him  nothing,  because 
he  is  estopped,  that  is,  denied  the  right  to  set  up  the  invalidity  of  the  instrument 
at  the  time  of  its  transfer  against  any  subsequent  holder. 


♦Subsisting. — Having  existence. 


CONTRACTS  AND  LIABILITIES  OF  THE  PARTIES.  75 

423.  Liability  of  Endorser  "Without  Recourse"  and  Holder  Delivering  Nego- 
tiable Paper  which  Passes  by  Delivery. — Such  an  endorser,  or  holder,  is  not  liable 
on  any  contract  on  the  paper  itself,  but  they  admit — 

1.  The  genuineness  and  validity  of  the  instrument. 

2.  The  capacity  and  authority  of  the  parties. 

3.  That  they  had  a  valid  title,  and  no  knowledge  of  any  facts  which  prove 
the  paper,  though  originally  valid,  to  be  worthless. 

If  any  of  these  facts  prove  to  be  untrue  the  consideration  paid  on  the  paper 
may  be  recovered.  A  gives  B  his  note  for  $1000  payable  in  six  months.  Before 
maturity,  because  of  A's  insolvency,  B  endorsed  the  note  "without  recourse," 
and  delivered  it  to  C,  who  was  a  bona  fide  purchaser.  At  maturity  C  can  recover 
of  B  the  money  or  other  consideration  he  gave  for  the  note. 

424.  Alteration  of  Instrument. — Where  a  negotiable  instrument  is  materially 
altered  without  consent  of  parties  liable  thereon  it  is  avoided,  except  as  to  the 
party  who  made  the  alteration  and  subsequent  endorsers.  *^^But  when  the 
paper  is  in  the  hands  of  a  bona  fide  holder,  not  a  party  to  the  alteration,  he  may 
enforce  payment  thereof  according  to  its  original  tenor.  This  changes  the  law. 
Prior  to  the  statute  the  rule  was  that  in  case  of  a  material  alteration  there  could 
be  no  recovery,  even  by  an  innocent  holder  for  value. 

426.  What  Constitutes  a  Material  Alteration. — Any  alteration  which  changes: 

1.  The  date. 

2.  The  sum  payable,  either  for  principal  or  interest. 

3.  The  time  or  place  of  payment. 

4.  The  number  or  the  relations  of  the  parties. 

5.  The  medium  or  currency  in  which  payment  is  to  be  made;  or, 

6.  Which  adds  a  place  of  payment  where  no  place  of  payment  is  specified,  is 
a  material  alteration. 


CASES. 


(Give  reasons  for  answers.) 

41.  A  depositor,  having  a  balance  of  $200  at  his  bankers,  draws  a  check  for  $100,  which  is 
dishonored.  The  depositor  brings  an  action  against  the  bank  to  recover  substantial  damages 
for  injury  to  his  credit.     Can  he  succeed?"^ 

42.  The  acceptor  of  a  draft  refuses  payment  because,  after  acceptance,  he  learns  that  the 
drawer  is  an  infant,  therefore  not  liable  for  his  contracts.  The  holder  sues  the  acceptor.  Can 
he  recover?"'-  "' 

43.  C  forges  A's  signature  as  drawer  of  a  draft,  which  is  accepted  by  B,  the  drawee.  Subs(^ 
^uently  B  learns  that  A's  signature  is  a  forgery,  and  refuses  payment  on  that  ground.  Is  it  p 
rood  defense?^'* 


76  CONDITJn^S  Ot   DRAWER'S  AND  ENDORSER'S  LIABILITY. 

44.  The  holder  of  a  note  sues  the  endorser,  who  sets  up  as  his  defeuse  that  the  maker's 
signature  was  forged.     Is  this  a  good  defense?"' 

45.  D,  the  holder  of  a  draft  for  $100,  discounts  it  with  a  banker  for  $90  without  endorsing 
it.     The  draft  is  dishonored.     Is  D  liable  to  refund  $90?"' 

46.  D,  the  holder  of  a  note  payable  to  bearer,  discounts  it  with  E  without  endorsing  it. 
It  turns  out  that,  unknown  to  D,  the  amount  of  the  note  had  been  fraudulently  altered  by  a 
previous  holder.     E  sues  D  to  recover  the  money  he  paid.     Can  he  succeed?*^ 

47.  D,  the  holder  of  a  draft,  duly  presents  it  to  B,  the  acceptor,  for  payment,  which  was 
refused.  D  notifies  A,  the  drawer,  also  C,  the  endorser.  D  sues  A,  who  sets  up  as  his  defense 
that  he  is  not  liable  after  the  draft  is  accepted  by  tlie  drawee.     Is  his  defense  good?*" 

48.  In  Case  No.  47,  if  D  fails  to  recover  from  the  drawer,  can  he  legally  look  to  the  endorser 
for  payment';"" 


CHAPTER  XXIII. 
CONDITIONS  OF  DRAWER'S  AND  ENDORSER'S  LIABILITY. 

427.  Duties  of  the  Holder. — The  drawer  and  endorser  do  not  promise  to  pay 
absolutely  and  at  all  events.  They  promise  to  indemnify  the  holder  only  in  case 
he  performs  certain  conditions,  which  are: 

i.  Due  presentment  of  the  draft  for  acceptance. 

2.  Due  demand  of  the  maker  or  acceptor  for  payment. 

3.  Due  notice  of  dishonor  to  the  diawer  or  endorser. 

428.  Due  Presentment  for  Acceptance. — 1.  What  Drafts  to  Be  Presented. 
It  is  necessary  to  present  only  those  that  are  drawn  at  or  after  sight. 

*'^2.  Time  for  Presentment.  When  the  draft  is  drawn  at  or  after  sight  it 
must  be  presented  within  a  reasonable  time,  which  is  a  mixed  question  of  law  and 
fact.  Reasonable  time  may  be  affected  by  various  circumstances,  such  as  (a) 
the  fluctuation  of  the  rate  of  exchange,  (b)  the  facilities  of  communication 
between  the  parties,  (c)  other  necessary  causes  of  delay,  i.  e.,  war,  sickness,  etc.  A 
of  Columbus  draws  a  draft  on  B  of  London,  payable  ninety  days  after  sight.  The 
payee  holds  it  back  for  two  months,  during  which  time  London  bills  are  at  a 
discount.  He  then  negotiates  it.  This  is  an  unreasonable  delay,  and  should 
the  drawee,  B,  refuse  to  honor  it,  the  drawer,  A,  would  not  be  liable. 

^^"3.  By  Whom  Presented.  Presentment  for  acceptance  ought  to  be  made 
by  the  holder  or  his  duly  authorized  agent. 

^•■"4.  To  Whom  Presented.  The  presentment  should  be  made  to  the  drawee 
or  his  duly  authorized  agent,  i.  e.,  bookkeeper  or  clerk  in  his  office. 

432.  Due  Demand  for  Payment. — 1.  Time  of  Demand.  The  holder  must 
present  the  draft  or  note  on  the  day  of  maturity.     If  made  on  the  day  before  or 


CONDITIONS  OF  DRAWER'S  AND  ENDORSER'S  LIABILITY.  77 

the  day  after  the  due  date,  unless  authorized  by  established  custom,  the  demand 
for  payment  will  be  nugatory.  E  holds  a  note  endorsed  by  C  and  D.  Wishing 
to  leave  the  city  on  the  day  of  maturity,  E  made  a  demand  for  payment  of  the 
maker  the  day  before  it  was  due.  The  maker  refused  payment,  whereupon  E 
notified  the  endorsers,  C  and  D.  The  endorsers  are  not  liable,  because  the 
demand  for  payment  Avas  not  made  on  the  right  day.  '*^^If  the  demand  for  pay;; 
ment  be  made  at  the  maker's  or  acceptor's  place  of  business  it  must  be  within 
business  hours.  If  at  his  residence,  it  must  be  within  those  hours  which  the 
maker  or  acceptor  is  presumed  to  be  in  a  condition  to  attend  to  business.  ^^^The 
holder  of  a  note  presents  it  at  11  o'clock  P.  M.  at  the  maker's  private  residence. 
This  is  an  unreasonable  hour;  hence  not  a  good  presentment.  But  when  the 
demand  for  the  payment  is  made  at  an  unreasonable  hour,  and  payment  refused 
on  some  other  ground,  the  draft  or  note  is  deemed  to  have  been  duly  presented. 
If,  in  the  above  illustration,  the  maker  did  not  object  to  the  lateness  of  the  hour, 
but  simply  denied  his  liability  on  the  note,  or  claimed  it  to  be  a  forgery,  or  for 
some  other  reason  would  not  pay  it,  the  demand  would  have  been  sufficient,  and 
the  endorsers  would  be  liable  upon  receiving  due  notice  of  its  dishonor.  *^^When 
a  draft  is  drawn  payable  at  sight  or  on  demand,  it  must  be  presented  for  payment 
either  on  the  day  it  is  received  or  the  day  following.  If  the  drawee  and  holder 
live  in  different  places  it  must  be  forwarded  by  mail  not  later  than  the  day  after 
its  receipt. 

^^^2.  Place  of  Demand.  The  general  rule  is  that  the  holder  must  exercise 
due  diligence  to  find  the  acceptor  or  maker.  When  the  place  is  mentioned  the' 
demand  should  be  at  that  place.  If  no  place  be  stated,  then  the  demand  should 
be  made  at  the  debtor's  place  of  business.  The  place  of  the  date  of  a  note  is 
prima  facie  evidence  of  the  debtor's  place  of  business,  and,  therefore,  the  place  of 
payment.  *^^But  if  the  place  of  business  or  residence  is  elsewhere,  and  such  fact 
be  known  to  the  holder,  he  must  present  the  paper  there.  Suppose  A  of  Hagers- 
town  while  in  Pittsburg  on  business  issued  his  note  to  B.  The  note  was  dated 
thus:  "Pittsburg,  September  1,  1905."  Before  maturity  B  endorses  the  note 
to  C.  If  C  wishes  to  look  to  B  for  payment,  should  A,  the  maker,  dishonor  it, 
he  must  demand  payment  of  A  in  Hagerstown,  Md.,  the  place  of  his  residence  or 
domicile. 

*^*A  personal  demand  on  the  street  is  good,  provided  no  objection  be  made 
to  the  place  where  the  demand  is  made.  The  holder  of  a  note  meets  B,  the 
maker,  on  the  street  on  the  day  of  maturit}^  and  presents  it  for  payment.  B 
merely  says  he  is  unable  to  pay  it,  and  raises  no  objection  to  the  place  of  the 
demand.  This  is  a  due  presentment,  and  would  be  sufficient  to  bind  the 
endorsers  if  notice  of  dishonor  be  given  them. 


78  DUE  NOTICE  OF  DISHONOR. 


CASES. 

(Give  reasons  for  answers.) 

50.  A  draft  whicli  h;\s  been  accepted  by  a  merchant  is  presented  to  hira  for  payment  at  liis 
country  home  at  9  P.  M.  Payment  being  refused,  the  drawer  is  duly  notified  and  subsequently 
sued.     Can  the  holder  recover?"' 

51.  A  draws  a  sight  draft  on  R  in  favor  of  C,  who  resides  in  the  same  city  as  B.  After 
keeping  tlie  draft  in  his  possession  four  days,  C  presents  it  for  payment.  The  draft  is  dishonored. 
C  seeks  to  hold  .\  lial)le.     Ought  he  succeed?"' 

52.  A  merchant  of  Wilmington,  wliile  in  New  York  city,  gave  B  his  note  and  dated  it  "New 
York  Citv,  Septemlior  1,  1905."  B  endorsed  the  note  to  C,  who  knew  that  the  merchant's  place 
of  business  was  in  Wilmington.  At  maturity,  C  presented  the  note  for  payment  to  the  merchant 
in  New  York  city,  who  replied  that  his  business  was  attended  to  in  Wilmington;  whereupon, 
without  any  further  demand,  C  notified  B  of  the  dishonor,  and  sought  to  make  him  liable.  Can 
he  succeed?"' 

53.  D  holds  A's  note,  which  was  made  payable  at  First  National  Bank.  The  note  had  been 
endorsed  by  B  and  C.  At  maturity,  D  presented  the  note  to  A  at  his  place  of  business,  and,  not 
being  paid,  he  duly  notified  B  and  C.     Are  B  and  C  liable  for  payment?"' 

54.  I),  the  holder  of  a  note,  which  is  silent  as  to  place  of  payment,  presents  it  to  A,  the 
maker,  on  the  street  on  the  day  of  maturity.  A  replies  that  he  has  no  money  with  which  to 
redeem  his  note;  whereupon  D  notifies  the  endorsers  of  its  dishonor.     Are  the  endorsers  liable?"' 


CHAPTER  XXIV. 

DUE  NOTICE  OF  DISHONOR. 

439.  Conditional  Liability  Made  Absolute. — If  the  drawee  refuses  to  accept 
or  to  pay  a  draft,  or  the  maker  of  a  note  refuses  payment,  the  endorser  or  drawer, 
or  both,  must  receive  notice  of  such  refusal.  When  such  notice  is  given  their 
liability  is  no  longer  conditional,  but  absolute.  In  consideration  of  the  fact  that 
it  is  often  difficult  to  prove  that  there  was  a  proper  presentment,  demand  and 
dishonor,  the  Law  Merchant*  requires  that  all  foreign  bills  of  exchange*  must 
be  protested.  The  benefits  of  protest  have  also  been  extended  to  drafts,  checks 
and  notes.     Although  it  is  usual  for  the  holder  to  have  drafts,  checks  and  notes 

^Foreign  Bill  of  Exchange. — A  foreign  bill  of  exchange  is  one  of  which  the  drawer  and  drawee 
are  residents  of  different  countries,  or  residents  of  countries  that  are  foreign  to  each 
other.  In  this  respect  the  States  of  the  United  States  are  held  to  be  foreign  as  to  each 
other;  therefore,  a  draft  drawn  by  A  of  Chicago,  111.,  on  B  of  Detroit,  Mich.,  would  be 
a  foreign  draft  or  bill  of  exchange. 

♦Law  Merchant. — Commercial  law. 


DUE  NOTICE  OF  DISHONOR.  79 

protested,  yet  it  is  not  obligatory  upon  him  to  do  so.  The  advantages  gained 
by  having  the  paper  protested  will  be  noticed  under  "Evidence  of  Protest." 

440.  The  Protest  as  Evidence. — Protest  is,  by  the  Law  Merchant,  made  prima 
facie  evidence  of  ^1)  due  presentment  for  acceptance,  and  (2)  due  demand  for 
payment  and  its  dishonor,  but  not  of  notice,  for,  as  already  stated,  it  is  not  the 
duty  of  the  notary  public  to  give  notice.  ^^^This  law  formerly  applied  to  foreign 
bills  of  exchange  only.  The  legislatures  of  the  different  States  have  passed  laws 
which  extend  to  inland  bills  and  promissory  notes  the  credit  given  to  the  protest 
as  in  foreign  bills  of  exchange,  and  makes  the  notary's  certificate  prima  facie 
evidence  of  the  presentment  for  acceptance  or  demand  for  payment  and  the 
protest  of  the  paper  for  non-acceptance  or  non-payment. 

^*-When  the  notary  public  sends  notice  to  the  endorsers  or  drawer  for  the 
holder,  the  same  act  provides  that  if  the  certificate  of  protest  shall  state  (as  in  the 
form  given)  that  notice  of  such  non-payment  or  non-acceptance  has  been  sent  or 
delivered  to  the  drawer  or  endorser  of  draft  or  note,  and  the  manner  of  sending 
the  notice,  such  protest  shall  be  prima  facie  evidence  that  such  notice  has  been 
sent  in  the  manner  therein  stated.  "'The  effect  of  this  act  is  to  make  the  protest 
of  the  notary  prima  facie  evidence  that  notice  has  been  gi^^en  in  the  manner 
described  in  the  protest.  And  for  this  reason,  although  not  necessary,  it  is 
customary  to  have  all  drafts  and  notes  protested  when  there  are  endorsers. 

CERTIFICATE  OF  PROTEST. 
STATE  OF  ILLINOIS,  to  mit: 

On  this,  the  first  day  of  September  in  the  yea.r  of  our  Lord  nineteen  hundred  and  five 
at  the  request  of  the  endorsee,  J,  N.  ROE,  bearer  of  the  original  Promissory  Note, 
'whereof  a  true  copy  is  attached  hereto,  I,  Thomas  Kelt  Bradford,  Notary  Public,  by  tetters 
patent  under  the  Great  Seal  of  Illinois,  commissioned  and  duly  qualified,  residing  in  the  City 
of  Peoria,  in  the  State  aforesaid,  presented  the  said  promissory  note  to  the  maker,  C.  J.  Har- 
mer,  and  duly  demanded  payment  thereof,  'which  ivas  refused. 

Wherefore,  I,  the  said  Notary,  at  the  request  of  the  aforesaid  endorsee,  HAVE  PRO- 
TESTED and  by  these  presents  DO  SOLEMNLY  PROTEST  as  'well  against  the  endorser  of 
the  said  Promissory  Note  as  all  others  'whom  it  may  concern,  for  exchange,  re-exchange,  and 
all  costs,  charges,  damages  and  interests  suffered  and  to  be  suffered  for  'want  of  payment  of 
the  said  Promissory  Note. 

This  done  and  Protested  at  the  City  of  Peoria  aforesaid,  and  on  the  same  day  I  addressed 
'written  notices  to  the  endorser  of  said  Promissory  Note,  informing  him  that  it  had  not  been 
paid,  payment  thereof  ha'v'ng  been  demanded  and  refused,  and  that  he  'would  be  held  respon- 
sible for  the  payment  thercoj 

In  testimony  'whereof ,  I  ha'be  hereunto  set  my  hand  and  affixed  my  notarial  seal  the  day 
and  year  aforesaid. 

THOMAS  KELL  BRADFORD,  Notary  Public. 

Protest $2  00 

Notices  and  postage 30 

$2  30 


80  DhE  NOTICE  OF  DISHONOR. 

444.  Protest. — By  protest  we  mean  a  certificate  of  a  notary  public  attesting 
the  dishonor  of  commercial  paper.  If  no  notary  public  can  be  foimd  the 
protest  may  be  made  by  a  private  person  in  the  presence  of  two  or  more  creditable 
witnesses. 

445.  What  Protest  Comprises.  —  1.  The  notary  public  or  his  clerk  or  runner 
must  j):esont  the  paper  to  the  drawee,  acceptor  or  maker  for  acceptance  or  pay- 
ment. 2.  Note  the  dishonor.  This  means  to  write  on  the  back  of  the  instru- 
ment date  of  refusal  to  accept  or  pay,  reason,  if  any,  charges  of  protest  and  his 
initials.  3.  Extension  of  protest:  The  meaning  of  which  is  that  the  notary 
must  write  out  from  the  memorandum  an  official  certificate,  the  usual  form  of 
which  is  shown  on  the  preceding  page. 

446.  Notary  May  Give  Notice. — It  is  no  part  of  a  notary's  public  duty 
to  send  notice  to  the  drawer  or  endorser.  His  official  duties  connected 
with  making  the  protest  are  entirely  separate  and  distinct  from  the  duty 
to  give  notice  of  dishonor.  However,  the  notary  does  often  give  the  required 
notice,  as  is  shown  in  the  certificate.  When  he  does  so  he  is  simply  acting 
as  agent  for  the  holder. 

447.  Who  May  Give  Notice  of  Dishonor. — The  notice  of  dishonor  should 
emanate  from  the  holder  of  the  instrument  or  his  duly  authorized  agent.  It  is 
not  absolutely  necessary  that  it  should  come  from  him.  Thus,  if  the  holder  duly 
notifies  the  fifth  endorser,  and  he  the  fourth,  and  the  fourth  the  third,  and  so  on 
to  the  first,  the  latter  will  be  liable  to  all  the  parties. 

448.  To  Whom  Notice  of  Dishonor  Should  Be  Given. — It  should  be  given  to 
every  collateral  party,  endorsers  and  drawer,  whom  the  holder  wishes  to  make 
liable.  The  acceptor  of  a  draft  and  the  maker  of  a  note  are  not  entitled  to  notice, 
they  being  the  primary  and  principal  debtors;  hence  the  first  to  know  of  its  dis- 
honor. Suppose  there  are  five  endorsers;  the  holder  may  notify  the  second  and 
fourth  only,  he  not  wishing  to  look  to  the  first,  third  and  fifth  for  payment. 
When  the  fourth  receives  notice  he  should,  if  he  wishes  to  hold  them  liable,  see 
that  those  before  him  have  notice,  for  if  they  receive  no  notice  that  payment 
was  refused  they  will  be  discharged. 

^^^Their  liability  to  each  other  is  as  follows:  The  fifth,  who  is  the  last 
endorser,  is  liable  to  the  holder  only,  and  not  to  those  who  precede  him;  the  fourth 
is  liable  to  the  fifth  and  holder,  but  not  to  the  third,  second  and  first,  and  so  on 
down  to  the  first  endorser.  Therefore,  if  the  first  endorser  be  required  to  pay 
the  note  he  can  look  to  the  maker  only,  for,  as  illustrated,  those  who  follow  are 
not  liable  to  him. 

450.  Time  Within  Which  and  Method  of  Giving  Notice. — Notice  of  protest 
may  be  given  personally  or  by  letter.     When  the  person  giving  and  the  person  to 


DUE  NOTICE  OF  DISHONOR.  81 

receive  notice  reside  in  the  same  place,  the  notice,  if  given  personally,  must  be 
given  not  later  than  the  day  following.  '*^^If  sent  by  mail  it  must  be  deposited  in 
the  postoffice  in  time  to  reach  him  in  usual  course  on  the  day  following.  If  the 
parties  live  in  different  places  the  notice,  if  sent  by  mail,  must  be  deposited  in  the 
postoffice  in  time  to  go  by  mail  the  day  follomng  the  day  of  dishonor.  If  given 
otherwise  than  through  the  postoffice,  then  within  the  time  that  the  notice  would 
have  been  received  in  due  course  of  mail.  Each  successive  endorser  receiving 
notice  is  entitled  to  one  day  to  transmit  notice  to  any  previous  endorser  who  may 
be  liable  to  him. 

452.  Form  of  Notice. — No  precise  form  of  words  is  necessary  in  giving  the 
notice.  It  may  be  given  verbally  or  in  writing.  It  is  essential,  however,  that 
the  notice  should  be  sufficient  to  identify  the  instrument  and  to  show  that  the 
paper  was  duly  presented  for  acceptance  or  payment,  as  the  case  may  be,  and 
dishonored. 

*^^The  following  notarial  notice  is  one  in  general  use: 

NOTICE  OF  PROTEST, 

Peoria,    September  2,  ig 

Plea.se  take  notice  that  a    PromissOry  Note. 
Dated     AllgUSt    Ist,      IQOj^ 

Payable    ofie   moTith    after  date^ 

To  the  order  of    L.     M.     HatlCe^ 

For  One    Thousand  Dollars^ 

Payable  at   Drovers  and  Mechanics  National  Bank. 

No<=Q}  due  and  by  you  endorsed,  is  deli'vered  to  me  by  the  cashier  of  the   DrOVers   and 

Mechanics     National    Bank     of    Peoria   for  protest,   and  the  same  not  being 

paid,  payment  thereof  ha'oing  been  demanded  and  refused,  is  protested,  and  you  are  held  liable 
for  the  payment  thereof. 

Yours  respectfully, 

Thomas  Kell  Bradford,    Notary  Public, 

Proof  of  Notice. — The  proof  of  notice  may  be  by  parol  or  by  certificate  of 
notary  public. 


82  DUE  NOTICE  OF  DISHONOR. 

454.  Due  Presentment,  Protest  and  Notice  Excused. — The  holder  may  be 
excused  from  a  faihirc  to  perform  the  things  that  arc  necessary  to  make  the  con- 
tingent liability  of  the  endorser  or  drawer  absolute  by  circumstances  of  a  general 
nature  or  by  waiver.  Circumstances  of  a  general  nature  may  be  classified  as 
follows:  (1)  Breaking  out  of  war;  (2)  public  and  positive  prohibition  of  commer- 
cial intercourse;  (3)  political  disturbances  amounting  to  a  virtual  interruption 
and  obstruction  of  trade;  (4)  the  prevalence  of  a  malignant  epidemic  disease,  i.  e., 
yellow  fever;  (5)  overwhelming  calamity  or  unavoicable  accident,  i.  e.,  floods, 
robbery  of  mails,  etc.  As  soon  as  the  impediment  ceases,  the  duty  of  presentment, 
protest  and  notice  revives.  ''"If  the  drawer  had  no  funds  in  the  possession  of  the 
drawee,  or  had  no  reasonable  grounds  for  believing  the  drawee  would  accept,  he 
is  not  entitled  to  notice  of  dishonor. 

456.  Waiver. — Again  we  ask  the  student  to  bear  in  mind  that  the  agreement 
of  the  endorser  or  drawer  is  that  he  will  indemnify  the  holder  if  due  demand  for 
payment  be  made  and  due  notice  of  dishonor  be  given.  ^"This  right,  which  he  is 
entitled  to  demand,  may  be  waived,  i.  e.,  he  may  agree  to  make  himself  absolutely 
hable,  so  far  as  demand  and  notice  are  concerned.  This  is  called  a  waiver.  It  is 
the  relinquishment  or  giving  up  of  some  right  which  one  is  entitled  bylaw  to 
demand.  The  demand  and  notice  may  be  waived  expressly  or  impliedly,  verbally 
or  in  writing,  on  the  instrument  or  by  a  separate  paper,  and  before,  after  or  at  the 
time  of  the  transfer  of  the  instrument.  '*-^^When  the  express  words  "presentation 
and  protest  waived"  are  written  in  the  instrument  they  become  binding  on  all  the 
parties  thereto.  But  when  put  over  the  signature  of  an  endorser  it  applies  to 
that  endorser  only.  The  expression,  *'I  waive  demand  and  notice,"  "Presenta- 
tion and  protest  waived,"  or  "I  waive  protest  and  notice,"  wTitten  over  an 
endorser's  signature,  means  that  he  waives  or  gives  up  all  steps  usually  necessarj' 
to  fix  the  liability  of  the  drawer  or  endorser,  i.  e.,  all  steps  ordinarily  taken  are 
dispensed  with. 

459.  No  Excuse. — If  knowledge  of  the  insolvency  or  bankruptcy  or  death  of 
the  acceptor  or  maker  has  come  to  the  holder,  or  if  the  instrument  has  been  lost 
or  mislaid,  it  is  no  excuse  for  him  not  to  take  the  necessary  steps  required  to  hold 
the  drawer  or  endorser.  Suppose  E,  the  holder  of  a  draft,  endorsed  by  C  and  D 
and  accepted  by  B,  learns  that  B  has  become  insolvent,  and,  knowTng  that  he 
cannot  pay  the  draft,  makes  no  demand,  but  notifies  the  endorsers  that  he  will 
look  to  them  for  payment.     In  such  a  case  the  endorsers  would  not  be  liable. 

CASES. 

(Give  reasons  for  answers.) 

55.  A  draft  endorsed  by  C  and  held  by  D  is  dishonored.  E,  who  is  in  no  way  acting  on 
D's  behalf,  informs  ''-  that  the  draft  has  been  dishonored.  Is  this  notice  sufficient  to  hold  the 
endorser,  C?"" 


BONA  FIDE  HOLDER.  83 

66.  C,  D  and  E  are  endorsers  of  a  draft.  The  holder  notifies  D  of  its  dishonor.  To  whom 
may  he  look  for  payment?"* 

57.  A,  B,  C,  D  and  E  are  endorsers  of  a  note.  The  holder  notifies  each  endorser  of  its 
dishonor  and  recovers  of  B,  the  second  endorser.  B  then  sues  C  for  indemnification.  Can  he 
succeed  ?^^^ 

58.  C  is  the  first  endorser,  D  the  second  endorser  and  E  the  holder  of  a  note.  C  and  Y. 
reside  in  the  same  city  while  D  and  E  reside  in  different  cities.  E  sends  notice  of  its  dishonor 
by  mail  to  both  endorsers,  who  claim  that  the  notice  was  never  received.  Was  the  notice  gvven 
sufficient  to  make  both  endorsers  liable?^^" 

59.  B  refused  payment  of  his  note  on  Monday.  D,  the  holder,  notified  C,  the  endorser, 
on  Wednesday,  and  sued  him  to  recover.     Can  he  succeed?^^" 

60.  D,  the  holder  of  a  note,  sues  C,  an  endorser.  C's  defense  is  that  the  notice  of  dishonor 
was  given  him  verbally.     That  being  his  only  defense,  can  D  recover?*^" 

61.  A  draws  a  draft  on  B,  who  is  under  no  ol^ligation  to  accept  or  pay  it,  and  has  not  implied 
that  he  would  do  so.  It  is  presented  and  dishonored.  C,  the  payee,  does  not  send  the  drawer 
notice  of  dishonor.     Is  the  drawer  discharged  from  liability ?^^^ 

62.  The  following  is  written  on  the  back  of  a  note:  "  I  waive  demand  and  notice.  C."  I), 
the  holder,  neglects  to  demand  payment  on  the  day  of  maturity,  and  when  demand  is  made  the 
note  is  dishonored.     Is  C  liable  as  an  endorser?''" 

63.  C  endorsed  a  note  thus:  "I  waive  protest  and  notice.  C."  The  holder  demanded 
payment  on  the  day  before  maturity,  which  Avas  refused.  The  holder  sues  C  to  recover,  who 
sets  up  as  his  defense  that  there  was  not  a  due  presentment  for  payment,  also  that  he  received 
no  notice  of  dishonor.     Is  his  defense  good?^^' 


CHAPTER  XXV. 
BONA  FIDE  HOLDER. 

460.  Negotiable  Paper  Imports  Consideration. — As  between  the  immediate 
parties  to  a  negotiable  instrument — parties  between  whom  there  is  privity  of 
contract — the  only  superiority  of  a  draft  or  note  over  any  other  evidence  of  debt 
is  that  it  on  its  face  implies  a  consideration.  *^^As  between  parties  who  are  not 
immediate,  i.  e.,  maker  and  endorsee,  there  are  many  other  points  of  superiority 
than  that  of  consideration,  provided  the  endorsee  or  holder  be  what  is  termed 
a  "  hona  fide  holder." 

462.  What  Constitutes  a  Bona  Fide  Holder.— To  constitute  a  person  a  bono 
iide  holder  he  must  have  taken  the  paper  (1)  in  good  faith;  (2)  for  a  valuable 
consideration;  (3)  before  maturity;  (4)  in  the  usual  course  of  business;  and  (5) 
without  any  notice  of  any  defects.  A  purchaser  of  a  negotiable  instrument  under 
these  circumstances  takes  it  free  from  all  equities  that  exist  between  the  preceding 
parties,  as,  for  example,  if  the  note  or  draft  was  without  consideration  originally, 


84  JiONA  FIDE  HOLDER. 

or  if  the  consideration  had  failed,  or  if  the  paper  had  been  paid,  and  not  taken  up, 
and  even  though  it  was  originally  obtained  by  fraud,  theft  or  robbery,  such  a 
purchaser  could  recover,  while  between  immediate  parties,  as  the  maker  and 
payee,  if  there  was  no  consideration,  or  the  consideration  had  failed,  or  the  note 
had  been  obtained  from  the  maker  by  fraud,  theft  or  robbery,  the  payee  could 
not  recover  from  the  maker.  Thus  it  is  that  a  bona  fide  holder  may  acquire  a 
much  better  title  than  the  party  from  whom  it  was  received.  We  shall  briefly 
consider  each  of  the  elements  named. 

463.  Bona  Fide. — This  means  in  good  faith,  as  distinguished  from  mola  fide 
(bad  faith).  C,  the  holder  of  a  note,  transferred  it  by  endorsement  to  D  for 
value.  D  knew  that  C  had  obtained  the  note  by  fraud,  but  was  not  a  party  to  it. 
D  is  not  a  bona  fide  holder. 

464.  Valuable  Consideration. — Any  consideration  which  is  sufficient  to  sup- 
port a  simple  contract. 

465.  Before  Maturity. — The  fact  that  a  draft  or  note  is  overdue  should  lead 
one  to  inquire  why  the  holder  himself  does  not  collect.  A  purchaser  after  ma- 
turity gets  no  better  title  than  the  party  from  whom  it  was  bought;  therefore,  in 
order  to  take  it  free  from  the  equities  that  exist  between  immediate  parties  it 
must  be  bought  before  the  maturity  of  the  paper.  A  draws  a  draft  on  B  payable 
to  his  own  order.  B  accepts  the  draft  subject  to  a  certain  condition  then  verbally 
agreed  to.  A  endorses  the  draft  after  maturity  to  C.  C  takes  the  draft  subject 
to  the  aforesaid  condition,  although  he  had  no  actual  notice  of  it.  Had  C  taken 
the  draft  before  maturity,  then  he  would  have  taken  it  free  from  the  condition. 

466.  Usual  Course  of  Business. — In  the  ordinary  and  usual  course  of  business 
means  transferring  the  paper  according  to  the  usages  and  customs  of  commercial 
transactions.  A  transferee,  without  endorsement,  when  the  instrument  requires 
an  endorsement,  does  not  take  it  in  the  ordinary  course  of  business.  A  note  is 
made  paj'^able  to  C,  or  order.  C  transfers  the  note  -vNdthout  endorsement  to  D. 
D  is  not  a  bona  fide  holder,  because  he  did  not  receive  it  in  the  usual  course  of 
business.     It  required  an  endorsement  to  transfer  the  title. 

467.  Without  Notice. — A  bona  fide  holder  must  be  without  notice  of  dishonor 
or  of  any  fraud  or  defect  of  title  or  of  any  other  fact  which  impeaches  its  validity 
in  transferer's  hands.  D,  the  holder  of  a  draft,  endorsed  m  blank,  transferred  it 
to  E  for  value.  E  suspects  that  D  had  obtained  the  draft  by  a  false* representa- 
tion, and  consequently  makes  no  inquiries.  As  a  matter  of  fact,  D  stole  the  draft. 
E  is  not  a  bona  fide  holder;  he  is  affected  with  notice. 

468.  Apparent  Exception. — There  is  an  apparent  exception  to  this  rule.  It 
is  stated  by  Hon.  Judge  Chalmers  thus:  "A  holder  who  derives  his  title  to  a 
draft  .through  a  bona  fide  holder  for  value  without  notice  has  all  the  rights  of  such 
bona  fide  holder  against  the  acceptor  and  all  pri'or  parties,  althougii  he  himself 


BONA  FIDE  HOLDER  85 

may  have  given  no  value,  and  may  be  affected  with  notice."  The  following  will 
illustrate  the  rule:  C,  a  partner  in  a  firm,  fraudulently  endorses  the  firm's  draft 
to  D  in  payment  of  a  private  debt.  F  knows  of  the  fraud,  but  is  not  a  party  to 
it,  D  endorses  the  draft  to  E,  who  takes  it  for  value  and  without  notice,  making 
him  a  bona  fide  holder.  E  endorses  it  to  F.  F,  although  he  had  notice  of  the 
fraud,  acquires  E's  rights.  He  can  sue  all  the  parties  to  the  draft.  The  reason  for 
the  rule  is  that  if  it  were  otherwise  it  might  destroy  the  rights  of  a  bona  fide  holder 
to  negotiate  the  instrument.  Thus,  F  might  have  been  the  only  person  to  whom 
E  could  have  sold  the  draft;  if  so,  and  he  could  not  have  given  him  a  good  title, 
it  would  greatly  destroy  the  valuable  rights  and  privileges  of  a  bona  fide  holder. 
469.  Defenses  Available  Against  a  Bona  Fide  Holder. — There  are  certain  de- 
fenses which  the  maker  or  acceptor  may  set  up  and  defeat  the  payment  of  a  note 
or  draft  even  in  the  hands  of  a  bona  fide  holder.  The  maker  or  acceptor  is  not 
liable  to  a  bona  fide  holder  when  the  instrument  is  shown  to  be  void  by  reason  of: 


1.  Incapacity  of  parties,  i.  e.,  when  the  maker  or  acceptor  is  an  infant,  a 
married  woman,  or  a  lunatic,  etc. 

2.  Some  statute  law  declaring  the  contract  utterly  void  because  of  illegal 
consideration. 

3.  Want  of  consent  to  the  contract  by  the  party  sought  to  be  bound.  There 
is  want  Oi  consent  when  the  signature  is  forged,  or  paper  materially  altered,  or 
the  signature  affixed  or  paper  delivered  under  duress.  Neither  is  the  maker 
bound  on  a  note  passed  into  circulation  which  is  stolen  when  incomplete  (contra, 
when  complete),  nor  when  the  note  is  constructed  over  his  signature. 

^''"Suppose  B,  an  infant  within  three  months  of  attaining  his  majority, 
accepts  a  draft  drawn  on  him  for  necessaries,  or  gives  his  note  for  the  same  purpose, 
payable  one  month  after  date.  The  infant  thereby  incurs  no  liability  on  the 
draft  or  note,  because  of  his  incapacity  to  contract.  A  gave  his  note  to  B  for  an 
illegal  consideration,  which  the  statute  declares  to  make  the  contract  void.  B 
endorses  it  to  C,  a  bona  fide  holder,  for  value  and  without  notice.  C  cannot 
recover  of  A,  but  he  ran  of  B. 

^^*C  having  found  a  piece  of  paper  on  which  B's  signature  was  written,  con- 
structs a  note  over  the  signature.  C  endorses  the  note  to  D,  a  bona  fide  holder. 
D  cannot  recover  of  the  maker,  because  he  never  gave  his  consent  to  the  contract. 
The  same  rule  applies  to  forgery.  No  person  is  liable  on  an  instrument  to  which 
his  signature  has  been  forged,  and  no  right  or  title  can  be  derived  through  a 
forged  signature. 

*'^C,  the  payee  of  a  note,  endorses  it  in  full  to  D.  D  loses  the  note,  and  it  is 
found  by  E.  B,  in  order  to  negotiate  the  note,  forges  D's  signature  as  endorser, 
and  then,  in  turn,  endorses  it  to  F,  a  bona  fide  holder.  F  acquires  no  title  to  the 
note;  he  cannot  enforce  payment  against  any  of  the  parties  thereto,  and  should 
the  maker  or  any  endorser  pay  him  the  payment  would  be  invalid. 


ae  CHECKS. 


CASES. 


(Give  reasons  for  answers.) 

64.  li,  the  payee  of  a  note,  endorsed  it  to  C  Ijy  way  of  a  gift.     Is  C  a  bona  fide  holder?*** 

65.  In  Case  No.  64,  suppose  the  note  is  dishonored,  anJ  due  notice  sent  to  the  endorser, 
B.     Can  C  recover  of  B?*" 

66.  B  accepts  a  draft  drawn  by  A  for  $100,  which  is  the  agreed  price  for  two  bales  of  cotton 
to  be  supplied  B  by  A.  A  delivers  only  one  bale.  A  endorses  the  acceptance  to  C,  a  hotia  fide 
purchaser.  C  sues  B,  who  sets  up  as  his  defense  that  there  was  a  failure  of  the  consideration. 
Is  his  defense  good?**^ 

67.  A  bought  of  B  1000  bushels  of  wheat,  which  was  to  be  of  a  quality  known  as  No.  1,  and 
gave  for  the  same  his  promissory  note.  When  the  wheat  was  delivered  it  Wiis  of  an  inferior 
quality  kno\vn  as  No.  2.     B  sues  A  to  recover  the  whole  amount  of  the  note.     Can  he  succeed?"^ 

68.  By  means  of  fraudulent  representations  A  obtained  from  B  two  negotial^le  notes  made 
payable  to  A,  or  order.  One  note  was  dated  September  1,  1905,  at  six  months,  for  $500;  the 
other  was  dated  September  1,  1905,  at  one  year,  for  $1000.  On  July  1,  1906,  A  sold  and  endorsed 
both  notes  to  C,  who  took  them  in  good  faith  and  for  value.  C  sues  B  to  recover  on  both  notes. 
B  sets  up  the  fraud  practiced  on  him  as  his  defense.     Can  C  recover?-*^ 

69.  A  removes  the  flyleaf  from  B's  book  on  which  B's  signature  is  written,  constructs  a 
not«  over  it,  and  endorses  it  to  C,  who  is  a  bona  fide  purchaser.  At  maturity  C  sues  B  to  recover. 
Can  he  succeed?*" 

70.  A  endorses  B's  note  to  C,  who  is  a  botia  fide  holder;  B  is  a  minor,  which  fact  was  unknown 
to  C  when  he  l)ought  the  note.     Is  B  liable  to  C  for  payment  of  the  note?"" 

71.  A  gives  B  his  note  for  $1000;  the  consideration  for  the  same  is  that  B  shall  murder  C. 
The  note  finds  its  way  into  the  hands  of  D,  a  bona  fide  holder.     D  sues  A.     Can  he  recover?**' 

72.  A  note  made  payable  to  John  Smith,  or  order,  is,  through  his  carelessness,  lost.  Another 
person  by  the  name  of  John  Smith  finds  the  note  and  endorses  it  to  D,  who  is  a  bona  fide  purchaser. 
Can  D  recover  of  the  maker?*" 


CHAPTER  XXVI. 

CHECKS. 

473.  Definition. — As  the  bank  becomes  the  custodian  of,  and,  therefore, 
responsible  for  all  money  deposited,  it  ■will  not  pay  any  of  the  money  entrusted 
to  its  care  for  safe  keeping  without  an  order  of  the  depositor,  that  is,  his  check. 
Therefore,  a  check  is  a  draft  or  written  order  drawn  on  a  bank  or  banker,  direct- 
ins;  it  to  pay  a  certain  sum  of  money  to  a  person  named  therein  or  to  his  order. 
Although  the  money  belongs  to  the  depositor,  and  he  be  ever  so  well  known  at  the 
bank,  yet  the  bank  will  not  pay  him  any  part  of  the  money  deposited  unless  he 
draws  a  check.     The  reason  for  this  is  that  the  bank  must  have  a  voucher  (de- 


CHECKS.  87 

positor's  order)  for  the  money  it  pays  out.  At  stated  periods,  usually  when  the 
bank  book  is  balanced,  these  checks  or  vouchers  are  returned  to  the  depositor, 
so  that  he  can  see  they  are  his  own  written  orders  on  which  the  money  was  paid 
on  his  account. 

474.  Differences  Between  a  Check  and  a  Draft. — Though  a  check  is  a  draft 
or  bill  of  exchange,  it  differs  therefrom  in  the  following  essential  characteristics: 

1.  The  form  and  wording  differ. 

2.  A  check  is  drawn  upon  a  bank  or  banker;  a  draft  is  drawn  on  an  individual 
or  firm. 

3.  A  check  is  used  for  paying  money;  a  draft  is  used  as  a  means  of  collecting 
money  from  a  debtor. 

4.  A  bank  is  under  legal  obligations  to  pay  a  check  when  properly  drawn 
and  presented,  if  it  have  funds  belonging  to  the  drawer;  the  drawee  of  a  draft 
is  under  no  legal  obligation  to  honor  it. 

■•^^A  check  has  all  the  essential  elements  of  a  draft,  but  its  construction  is 
somewhat  different,  as  the  drawee's  name  does  not  appear  in  the  lower  left-hand 
corner,  as  is  usual  in  drafts,  but  generally  in  the  body  of  the  check,  as  is  shown 
in  the  following  form: 

Check. 


'.c^^ 


476.  Drawer  of  a  Check. — The  drawer  of  a  check  stands  upon  a  different 
footing  from  the  drawer  of  a  draft.  He  is  regarded  as  the  principal  debtor,  and 
negligence  of  the  payee  or  holder  in  making  due  presentment,  or  in  giving  him 
(the  drawer)  due  notice  of  its  dishonor,  does  not  discharge  him  from  liability, 
unless  he  (the  drawer)  has  suffered  some  loss  from  such  negligence.  Were  it 
otherwise  the  drawer  would  profit  by  neglect  of  the  holder,  which  could  do  him 
no  injury.  If  the  funds  be  lost,  as  in  the  case  of  the  failure  of  a  bank,  on  account 
of  the  holder's  neglecting  to  make  a  due  presentment  for  payment,  he  must  bexir 
the  entire  loss.  A  draws  a  check  in  1904  in  favor  of  C.  It  is  not  presented  to 
the  bank  until  1906,  and  is  then  dishonored.     A  is  not  discharged  from  liability. 


88  CHECKS. 

although  uo  reason  for  the  delay  is  shown.  The  holder  can  sue  him  and  recover. 
A  check  drawn  by  A  on  a  St.  Louis  bank  is  handed  to  the  payee  in  St.  Louis  on 
Monday.  On  Wednesday  morning  the  bank  on  which  it  was  drawn  failed,  A 
having  at  that  time  sufficient  funds  there  to  meet  it.  The  check  is  presented  for 
payment  on  Wednesday  afternoon.  A  is  discharged  from  all  liability,  because 
he  had  the  money  in  the  bank  to  pay  the  check  had  it  been  duly  presented. 

477.  Endorser  of  a  Check. — An  endorser  of  a  check  is  absolutely  discharged 
from  liability  if  presentment  for  payment  be  not  made  by  the  endorsee  within 
a  reasonable  time  after  he  receives  it  and  due  notice  of  dishonor  be  given  the 
endorser  the  same  as  when  drafts  and  notes  are  dishonored. 

478.  Time  of  Presentment. — If  the  person  who  receives  the  check  and  the 
banker  live  in  the  same  place,  the  check  must  be  presented  for  payment  not  later 
than  the  day  after  it  is  received;  if  they  live  in  different  places  the  holder  may 
forward  it  by  mail  on  the  day  after  it  is  received  to  some  person  or  bank  at  the 
place  where  the  bank  is,  which  person  or  bank  may  present  it  on  the  day  after  it 
is  received.  C  of  Cleveland  receives  en  Monday  a  check  drawn  on  a  Cleveland 
bank.  On  Tuesday,  instead  of  presenting  it  himself,  he  deposits  it  wdth  his 
banker,  who  presents  it  on  Wednesday.  C  has  not  presented  the  check  within 
a  reasonable  time.  If  there  were  endorsers  they  would  be  discharged.  Checks 
may  be,  and  usually  are,  protested,  the  same  as  any  other  drafts  or  inland  bills 
of  exchange. 

479.  Check  "Raising." — In  filling  out  a  check  the  utmost  care  should  be 
used  in  order  that  the  amount  cannot  be  akered  or  changed.  No  blank  space 
should  be  left  where  the  amount  is  written,  so  that  the  check  cannot  be  "raised" 
by  any  dishonest  person  into  whose  hands  it  may  come.  In  filling  out  the 
check,  begin  the  words  representing  the  amount  at  the  extreme  left  end  of  the 
line,  filling  the  remaining  space  to  the  right  with  a  waved  line.  If  the  drawer 
be  careless  and  fail  to  protect  the  check  from  being  raised,  the  loss  will  fall  on 
him,  but  if  he  use  care  and  diligence  to  prevent  such  a  change,  and  the  bank  pay 
the  raised  amount  of  the  check,  it  must  bear  the  loss. 

480.  Identification. — Checks  are  usually  drawn  payable  to  a  certain  person 
or  to  his  order,  so  that  they  cannot  be  used  except  by  the  proper  person.  A 
check  so  drawn  must  be  endorsed  by  the  payee  before  it  can  be  used.  If  the 
bank  on  which  the  check  is  drawn  should  pay  the  check  on  a  forged  endorsement 
it  would  be  responsible  for  the  loss.  When  the  payee  or  holder  of  a  check  applies 
to  the  bank  for  payment  he  must  be  known  to  the  paying  teller  or  be  identified. 
One  way  to  do  awa}^  with  the  necessity  for  identification  is  for  the  payee  to 
endorse  the  check  in  the  presence  of  the  drawer  and  have  him  (the  drawer)  add 
the  words  "endorsement  guaranteed,"  and  sign  his  name.  In  such  a  case  the 
bank  will  not  require  identification. 


CERTIFIED  CHECKS,  CERTIFICATES  OF  DEPOSIT,  ETC.  89 

CASES. 

(Give  reasons  for  answers.) 

73.  The  First  National  Bank  dishonored  a  check  drawn  on  it  by  A,  because  he  had  no  funds 
in  the  bank.  The  holder  did  not  have  the  check  protested,  nor  did  he  give  the  drawer  notice 
of  dishonor  until  about  two  weeks  afterwards.     Is  the  drawer  discharged  from  liability?''" 

74.  A  check  drawn  by  A,  and  endorsed  by  B,  C  and  D,  was  presented  to  the  bank  for  pay- 
mait  by  E,  the  holder.  The  bank  dishonored  it.  No  notice  of  dishonor  was  sent  to  the 
endorsera  or  drawer.     To  whom  can  E  look  for  payment  ?''" 

75.  On  Tuesday  A  gives  B  a  check  on  the  First  National  Bank.  The  bank  stopped  pay- 
ment on  Wednesday  morning,  at  which  time  it  had  funds  of  A's  sufficient  to  meet  the  check. 
B  went  to  the  bank  Wednesday  afternoon,  before  the  close  of  banking  hours,  to  demand  the 
payment  of  the  check.     Is  the  drawer  discharged  from  liability?^" 

MISCELLANEOUS  CASES. 

1.  A  held  B's  note  for  $500,  which  had  been  made  payable  to  C,  or  order,  at  the  Merchants 
Bank,  and  had  been  endorsed  by  C  to  A.  On  the  day  of  maturity  the  holder,  A,  presented  it 
for  payment,  not  at  the  bank,  but  at  B's  residence.  Payment  being  refused,  he  duly  notified 
C.  Had  the  note  been  presented  at  the  bank  it  would  not  have  been  paid,  because  B  had  no 
funds  there  to  meet  it.     Is  C  liable  for  the  payment  of  the  note? 

2.  C  secures  B's  note  through  fraud.  C  holds  the  note  until  after  maturity,  when  he 
endorses  it  to  A,  who  received  the  note  in  good  faith  and  for  value.  Is  B  liable  on  the  note? 
Would  B's  liability  be  the  same  had  A  received  the  note  before  maturity? 

3.  A  had  S500  on  deposit  in  the  American  National  Bank,  and  drew  a  check  on  the  bank 
payable  to  B,  who  presented  it  to  the  bank,  but  for  some  unexplained  reason  payment  was 
refused.     Can  B  compel  the  bank  to  pay  the  check? 

4.  A,  a  Cincinnati  merchant,  drew  on  B,  a  Philadelphia  customer,  for  S700,  payable  at 
sight  and  in  favor  of  C.  The  draft  was  not  presented  to  the  drawee  until  one  month  after  it 
was  drawn,  at  which  time  B  had  failed.     Is  A  liable? 

5.  A,  a  minor,  was  indebted  to  B.  He  executed  and  delivered  to  B  his  note,  which  B 
endorsed  in  full  to  C.     Is  A  liable  to  C?     Is  B  liable? 

6..  A  draft  purporting  to  be  drawn  by  A  upon  B  for  $750,  in  favor  of  C,  and  endorsed  by 
C  to  E,  is  presented  to  B  and  by  him  accepted.  The  signature  of  A  proves  to  be  a  forgery.  Is 
B  liable? 


CHAPTER  XXVII. 

CERTIFIED    CHECKS,    CERTIFICATES    OF    DEPOSIT,    ACCOMMODATION 
PAPER,  LOST  PAPER,  BILL  OF  LADING,  STATUTE  OF  LIMITATIONS. 

481.  Certified  Checks. — A  check  being  payable  immediately  on  demand,  the 
holder  can  only  present  it  for  payment  and  the  bank  can  only  fulfill  its  duty  to 
the  depositor  by  paying  it.     But  by  the  consent  of  the  holder,  the  president, 


00  CEliTlFlED  CHECKS,  CERTIFICATES  OF  DEFUSIT,  ETC. 

cashier  or  teller  may  certify  the  check  to  be  "good''  instead  of  paying  it.     The 
following  ahows  the  manner  in  which  it  may  be  certified: 

Certified    Check. 


482.  Effect  of  Certification. — When  the  check  is  certified  for  the  holder  the 
.ffect  is  as  follows: 

1.  It  makes  the  bank  the  principal  debtor. 

2.  It  discharges  the  drawer  of  the  check. 

3.  It  enables  the  check  to  circulate  as  the  representation  of  so  much  cash  in 
the  bank,  payable  on  demand  to  the  holder. 

483.  After  Certification. — It  will  be  too  late  after  the  bank  has  certified  the 
check  for  the  drawer  to  revoke  it.  The  bank  will  be  bound  to  pay  it,  though 
notified  not  to  do  so;  nor  can  the  bank  say  that  the  check  was  forged,  or  that  it 
had  no  funds  to  meet  the  check.  A  draws  a  check  in  favor  of  C  on  a  Baltimore 
bank.  C,  instead  of  drawing  the  money,  requests  the  bank  to  certify  it.  The 
following  day  the  bank  fails.  C  has  no  recourse  to  A.  He  alone  must  bear  the 
loss. 

Certificate  op  Deposit. 


CERTIFIED  CHECKS,  CERTIFICATES  OF  DEPOSIT,  ETC.  91 

484.  Certificate  of  Deposit. — A  certificate  of  deposit  is  a  receipt  of  a  bank  or 
banker  for  a  certain  sum  of  money  received  upon  deposit.  It  is  generally  worded 
as  a  promissory  note,  payable  to  the  depositor  or  to  his  order,  or  bearer,  as  shown 
in  the  preceding  form. 

485.  Bank's  Liability.— The  bank's  liability  for  the  payment  of  its  certifi- 
cates of  deposit  is  the  same  as  the  liability  of  the  maker  of  a  note.  The  sertifi- 
cates  of  a  bank  circulate  as  freely  and  are  received  with  as  much  confidence  as  the 
bills  of  a  bank,  and  are  regarded  as  cash  in  all  mercantile  affairs.  They  are 
usually  made  payable  on  demand,  but  not  infrequently  they  are  made  payable 
at  a  certain  time  in  the  future.  The  transfer  of  a  certificate  of  deposit  is  governed 
by  the  same  rules  which  control  other  commercial  paper.  If  payable  to  bearer 
it  may  be  transferred  by  delivery,  but  if  payable  to  order,  must  be  endorsed. 

486.  Accommodation  Paper. — When  the  acceptor  of  a  draft  or  the  maker  of 
a  note,  though  ostensibly  the  principal  debtor,  is  in  reality  a  mere  surety  for 
some  other  person,  then  such  paper  is  an  accommodation  draft  or  note.  The 
object  of  the  person  accommodating  is  to  lend  his  name  to  some  other  person  as 
a  means  of  credit.  A  draws  a  draft  on  B,  who  accepts  it  to  accommodate  A.  It 
is  negotiated.     This  is  an  accommodation  draft. 

**^The  party  who  accommodates  is  in  no  way  liable  to  the  party  accommo- 
dated. Thus,  if  A  gives  his  note  to  B  in  order  that  B  may  raise  some  money  on 
it,  B  could  not  recover  of  A,  the  maker,  because  of  no  consideration.  But  if  the 
note  goes  into  the  hands  of  a  third  party,  then  A  is  liable,  as  maker,  to  such  third 
party.  That  is,  if  B  discounts  the  note  at  a  bank,  A  cannot  escape  his  liability  as 
maker.  If  the  person  who  accommodates,  i.  e.,  A,  is  compelled  to  pay,  he  can  re- 
cover the  amount,  with  all  costs  and  charges,  from  the  person  accommodated,  B. 

488.  Lost  Paper. — By  common  law,  no  action  could  be  brought  to  enable  the 
owner  of  a  lost  draft  or  note  to  recover  the  amount  due  on  it,  because  there  is  in 
such  cases  no  provision  in  the  law  whereby  the  acceptor  or  maker  could  demand 
any  indemnity  of  the  owner  of  a  lost  draft  or  note  in  case  such  a  paper  got  into 
the  hands  of  a  bona  fide  holder.  But  there  are  a  few  exceptions  to  that  rule, 
which  are  founded  on  reason  and  justice.  '**^If  the  draft  or  note  had  been 
destroyed,  or  had  been  traced  to  the  defendant,  or  if  it  were  non-negotiable,  or 
required  the  endorsement  of  the  party  losing  it  to  render  it  negotiable,  then  the 
owner  could  recover,  because  there  is,  in  such  cases,  no  possibility  of  the  instru- 
ment ever  finding  its  way  into  the  hands  of  a  bona  fide  holder. 

490.  Provisions  Have  Been  Made  by  Statute  throughout  the  United  States 
whereby  the  owner  of  a  lost  paper  can  recover  in  cases  which  do  not  fall  within 
the  above  exceptions.  The  statute  substantially  provides  that  the  party  seeking 
to  recover  shall  give  the  acceptor  or  maker  a  bond  of  indemnity  which  will  secure 
bim  against  loss.     Suppose  the  draft  or  note  were  made  payable  to  bonror,  and 


92  ci:irni'ii:i)  c/ihcKs,  cHirriFicATi-.s  of  df.I'osit,  etc. 

happened  to  be  lost  or  stolen  from  the  holder,  and  found  its  way  into  the  hands  of 
:i  bona  fide  holder  for  value,  then  the  new  holder  could  lawfully  claim  payment. 
The  maker,  however,  would  not  sustain  any  loss,  because  he  can,  by  means  of  the 
bond  of  indemnity,  reimburse  himself  from  the  party  giving  the  bond.  To 
illustrate,  suppose  C  lost  a  note  made  payable  to  bearer,  or  order,  and  endorsed 
in  blank.  The  note  was  found  by  D  and  sold  to  E,  a  bona  fide  holder,  for  value. 
At  maturity  C  sues  B,  the  maker.  The  court  will  require  C  to  give  B  a  bond  of 
indemnity;  thereupon  B  will  be  compelled  to  pa)^  the  amount,  although  the  note  is 
not  surrendered  to  him.  In  a  few  days  the  bona  fide  holder  presents  the  note  to  B 
for  payment,  who  is  required  to  pay  it.  B  can,  without  loss  to  himself,  pay  the  note 
the  second  time,  because  C  will  be  required  to  reimburse  him.  Th(^  loss  then  falls 
upon  C,  the  party  who  ought  to  bear  it,  because  it  was  probably  through  his  careless- 
ness or  neglect  that  the  note  was  lost.  When  paper  of  this  kind  Is  lost  an  adver- 
tisement is  sometimes  put  in  the  newspapers.  Such  a  notice,  however,  does  no 
good  unless  the  party  to  whom  the  paper  is  offered  has  read  or  heard  of  the  notice. 

491.  Bill  of  Lading. — A  bill  of  lading  is  a  wTitten  acknowledgment  of  the 
receipt  of  certain  goods  by  a  common  carrier,  who  promises  for  a  consideration  to 
transport  and  deliver  the  same  at  a  specified  place  to  a  person  therein  named  or 
his  order.  It  is  both  a  receipt  and  a  contract.  In  so  far  as  the  bill  of  lading 
admits  of  the  character,  quality  or  condition  of  the  goods  at  the  time  they  were 
received  by  the  carrier,  it,  like  all  receipts,  may  be  explained  or  contradicted  by 
parol  proof,  but  as  respects  the  agreement  to  carry  and  deliver,  it  is  a  contract 
and  may  be  construed  according  to  its  terms. 

492.  Assignment  of. — Bills  of  lading  are  usually  so  worded  as  to  make  them 
negotiable  the  same  as  other  commercial  paper.  A  bona  fide  endorsee  becomes, 
as  against  all  the  world,  the  owner  of  the  goods,  free  from  any  equities  existing 
between  the  consignor  of  the  goods  and  the  consignee.  Though  one  who  has  stolen 
a  bill  of  lading  cannot  assign  it  so  as  to  pass  title  to  the  merchandise,  yet  a  bona 
fide  assignee  of  one  who  has  obtained  such  bill  by  fraud  from  the  owner  has  good 
title  against  the  owner  as  well  as  against  third  persons.  Though  the  assignee 
should  become  insolvent  without  having  paid  for  the  goods,  yet  his  assignment, 
made  for  a  valuable  consideration  and  wdthout  notice  to  the  assignee  that  the 
goods  were  not  paid  for,  has  been  held  to  pass  them  absolutely  to  the  assignee 
and  deprive  the  consignor  of  his  right  to  recall  the  goods  before  they  were  deliv- 
ered, which,  as  against  the  original  consignee,  he  might  have  exercised.  But  if 
the  assignee  of  the  bill  of  lading  knew  that  the  consignee  was  insolvent,  and 
assisted  to  defraud  the  consignor  of  the  price  of  his  goods,  he  stands  in  the  same 
situation  as  the  consignee,  and  the  consignor  retains  his  right  to  stop  the  goods 
in  transitu.  To  illustrate  further,  we  will  suppose  Smith  &  Co.,  of  Richmond, 
ordered  goods  from  Brown  &  Co.,  Chicago.     The  consignor.  Brown  &  Co.,  sends 


CERTIFIED  CHECKS,  CERTIFICATES  OF  DEPOSIT,  ETC. 


93 


the  bill  of  lading  to  the  consignee,  Smith  &  Co.  While  the  goods  are  en  route 
Smith  &  Co.  becomes  insolvent.  Brown  &  Co.  may  notify  the  carrier  not  to  deliver 
the  goods  to  the  consignee.  But  if  Smith  &  Co.  had  previously  assigned  the  bill  of 
lading  to  a  bona  fide  purchaser  Brown  &  Co.  would  have  no  right  to  stop  delivery. 

493.  Statute  of  Limitations. — The  meaning  of  "Statute  of  Limitations"  is 
that  legal  rights  should  be  asserted  or  enforced  within  a  certain  time,  and  if  not 
so  asserted  within  a  stated  time  the  right  to  enforce  is  lost.  When  the  time  is 
past  in  which  an  action  may  be  instituted  the  debt  or  other  legal  rights  are  said  to 
be  "outlawed"  or  "barred  by  Statute  of  Limitations."  In  Maryland,  for  instance, 
the  Statute  of  Limitations  for  all  contracts  for  the  payment  of  money  is  three  years. 
That  is,  if  the  debt  be  not  collected  within  three  years  after  it  is  due  it  will  be  out- 
lawed and  the  debtor  will  no  longer  be  under  legal  obligation  to  pay  his  creditor. 

The  time  nllowed  a  creditor  to  recover  from  his  debtor  varies  in  the  different 
States,  as  it  is  a  statutory  regulation.     We,  therefore,  submit  the  following 

TABLE  OF  LIMITATIONS. 


1^ 

D.  o 

O  " 


Alabama 

Arizona 

Arkansas    

California 

Colorado 

Connecticut 

Delaware    

District  of  Colum!.>ia 

Florida 

Georgia 

Idaho    

Illinois    

Indiana 

Iowa 

Kansas 

Kentuckj' 

Louisiana  ...  - 

Maine   

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi    

Missouri    

Montana 


6 
5 
5 
4 
6 
6 
6 
3 
5 
6 
5 
10 
10 
10 
5 
5 
5 
6 
3 
6 
6 
6 
6 
10 
8 


20 
5 

10 
5 

6 

20 

20 
10 

6 
20 
20 
20 

5 
15 
10 
20 
10 
20 
10 
10 

7 
20 
10 


Nebraska 

Nevada  

New  Hampshire 
New  Jersey  .  .  . 
New  Mexico  .  .  . 
New  York  .  .  .  . 
North  Carolina 
North  Dakota .  . 

Ohio    

Oklahoma    .... 

Oregon 

Pennsylvania  .  . 
Rhode  Island  .  . 
South  Carolina 
South  Dakota    . 

Tennessee 

Texas   

Utah 

Vermont 

Virginia    

Washington  .  .  . 
West  Virginia    . 
Wisconsin 
Wyoming 


5 
4 
6 
6 
6 
6 
3 
6 

15 
5 
6 
6 
6 
6 
6 
6 
4 
4 

14 
5 
6 

10 
6 
5 


5 

5 
20 
20 

7 
20 
10 
20 
15 

5 
10 
20 
20 
20 
20 
10 
10 

5 

8 
10 

6 
10 
20 

5 


94  CERTU'IED  CHECKS,  CERTIFICATES  OF  DEPOSIT,  ETC. 

^''^The  statute  begins  to  run  on  drafts  and  notes  the  first  day  after  maturity. 
To  illustrate,  suppose  Xgives  his  note  to  B,  dated  September  1,  1905,  payable 
in  one  year.  The  note  is  due  September  1,  190G.  On  September  1,  190G,  the 
limitation  begins  to  run,  and  if  B  does  not  bring  his  action  to  recover  within 
three  years  from  that  time,  i.  e.,  September  1,  1909,  his  right  to  recover  will  be 
lost.  "^'"The  maker  of  a  note  is  not  discharged  from  liability  if  the  holder  does 
not  demand  payment  at  maturity,  but,  as  previously  stated,  an  endorser  is, 
because  his  liability  is  only  conditional.  If  an  endorser  waives  protest  and  notice, 
then  his  liability  will  continue  to  run  for  the  same  length  of  time  as  the  maker's. 


CASES. 

(Give  reasons  for  answers.) 

7G.  A  gives  B  his  check  on  First  National  Bank.  B  presents  the  check  to  the  bank  and 
requests  the  bank  to  certify  it,  which  the  bank  does.  On  the  following  day  the  bank  fails. 
B  seeks  to  hold  A  liable.     Can  he  succeed?^" 

77.  A  wishes  to  borrow  $1000  of  the  First  National  Bank.  The  bank  declines  to  give  him 
the  money  on  his  own  paper.  A  thereupon  draws  a  draft  on  B,  who  accepts  for  A's  accom- 
modation. A  does  not  have  the  draft  discounted,  but  at  maturity  brings  suit  against  H,  the 
acceptor,  to  recover  the  amount  of  the  draft.     Can  lie  succeed?^" 

78.  A  gives  his  note  to  B  in  order  that  B  might  borrow  money  on  it.  B  tliscounts  the  note 
at  a  bank.  At  maturity  the  bank  brings  an  action  against  A  for  the  sum  secured  on  its  face. 
Can  the  bank  succeed?"^ 

79.  In  the  above  case,  to  whom  can  A,  the  maker,  look  for  reimbursement,  should  he  be 
required  to  pay?^" 

80.  C  lost  a  note,  which  was  made  payable  to  his  order  and  which  had  not  been  endorsed 
before  it  was  lost.     Can  C  recover  of  the  maker  without  giving  him  a  bond  of  indemnity ?*«* 

81.  B's  note,  which  was  held  by  C,  was  destroyed  In-  fire.  C  sues  B  to  recover  on  the  note, 
but  refuses  to  give  B  a  bond  of  indemnity.     Can  he  succeed?^*** 

82.  B  executed  a  note  payable  to  C,  or  order.  C  endorsed  the  note  in  blank  to  D.  D, 
through  no  fault  of  his,  lost  it.  At  maturity,  D  gives  B  a  lx)nd  of  indemity  antl  rocovcre  on  the 
note.  A  bona  fide  holder  of  the  note  sues  B,  who  sets  up  as  his  defense  that  the  note  having 
Ijeen  paid,  he  is  no  longer  liable.     Is  this  a  good  defense?^'" 

83.  C,  the  holder  of  B's  note,  neglects  to  demand  payment  until  one  year  after  the  maturity 
of  the  note.     Is  the  maker  still  liable?"^ 

84.  A  note  dated  January  1,  1905,  payable  in  one  year,  is  not  presented  for  payment  until 
February  1,  1908.  Payment  being  refused,  the  holder  notifies  the  eudori^ers.  Are  the  endorsers 
and  maker  liable?**' 

QUESTIONS  FOR  REVIEW. 

1.  Define  negotiable  paper.  2,  What  is  meant  by  non-negotiable  paper?  .3.  How  is  non- 
negotiable  paper  assigned?  4.  What  are  the  rights  of  the  assignee  of  non-negotiable  paper? 
5.  \Miat  is  t^e  rule  as  to  passing  title  to  negotiable  paper  when  the  transferrer  has  no  title  him- 


CERTIFIED  CHECKS,  CERTIFICATES  OF  DEPOSIT,  ETC.  95 

self?  6.  Define  a  Bill  of  Exchange.  7.  What  is  a  promissory  note?  8.  How  many  parties 
to  a  draft?  9.  How  many  parties  to  a  check?  10.  Who  are  the  parties  to  a  note?  11.  What 
are  the  essential  requisites  of  negotiability?  12.  What  is  meant  by  giving  commercial  paper 
as  escrow?  13.  What  effect  have  additional  stipulations  on  the  negotiability  of  commercial 
paper?  r4.  Are  notes  which  contain  additional  stipulations  good  contracts  as  between  the 
imniediatt  parties?  15.  What  is  meant  by  remote  parties?  16.  May  an  endorsee  have  a  better 
title  than  m  endorser?  17.  What  is  a  judgment  note?  18.  Define  collateral  note.  19.  Is  the 
date  of  the  note  essential  to  its  negotiability?  20.  Who  is  the  payee  of  commercial  paper?  21. 
How  must  the  amount  be  stated?  22.  What  do  the  expressions  "value  received"  and  "value 
received  and  charge  to  my  account"  mean?  23.  Who  is  the  drawee  of  a  draft?  24.  What  is 
meant  by  days  of  grace?  25.  How  does  the  drawee  fasten  his  liability  on  a  draft?  26.  Is  a 
verbal  acceptance  binding?  27.  May  the  acceptance  be  made  on  a  separate  paper?  28.  When 
may  the  acceptance  be  made?  29.  What  is  a  general  acceptance?  30.  Define  qualified  accep- 
tance. 31.  What  is  the  effect  of  a  qualified  acceptance  on  the  liability  of  the  drawer?  32. 
Is  the  drawer  still  liable  after  a  general  acceptance  by  the  drawee?  33.  What  is  an  endorse- 
ment? 34.  How  many  kinds  of  endorsements?  35.  What  is  a  blank  endorsement?  36.  How 
may  paper  be  transferred  when  endorsed  in  blank?  37.  What  is  a  full  endorsement?  38.  May 
the  holder  change  a  ])lank  endorsement  to  one  in  full?  39.  What  is  a  qualified  endorsement? 
40.  Define  conditional  endorsement.  41.  What  is  the  effect  of  a  restrictive  endorsement?  42. 
If  a  party  puts  his  name  on  the  back  of  a  note,  when  will  he  be  considered  a  surety?  43.  When 
maker?  44.  When  guarantor?  45.  State  the  drawee's  liability  as  to  the  drawer.  46.  What 
is  the  drawee's  liabihty  as  to  the  holder?  47.  What  is  the  acceptor's  liability?  48.  What  does 
the  acceptor  conclusively  admit  and  warrant  to  a  bona  fide  holder?  49.  Define  drawer's  liability. 
50.  What  is  an  endorsee's  liability?  51.  What  does  an  endorser  conclusively  admit  and  warrant 
to  a  bona  fide  holder?  52.  State  the  liability  of  an  endorser  without  recourse.  53.  What  steps 
must  be  taken  by  the  holder  in  order  to  make  absolute  the  liability  of  a  drawer  or  endorser? 
54.  When  must  a  draft  be  presented  to  the  drawee?  55.  What  is  meant  by  demand  for  payment? 
56.  What  is  meant  by  protesting  commercial  paper?  57.  What  does  protest  comprise?  58.  Who 
may  give  the  notice  of  dishonor?  59.  To  whom  should  notice  of  dishonor  be  given?  60.  When 
must  the  notice  of  dishonor  be  given?  61.  What  must  the  notice  contain?  62.  Why  are  notes, 
checks,  drafts,  etc.,  protested  when  the  law  does  not  require  it?  63.  What  is  meant  by  a  waiver 
of  notice  and  protest?  64.  What  constitutes  a  bona  fide  holder?  65.  What  are  the  defenses 
that  may  be  set  up  against  a  bona  fide  holder  and  defeat  his  rights  to  recover?  66.  What  is  a 
check?  67.  State  the  differences  between  ?  check  and  a  draft?  68.  What  is  a  certified  check'' 
69.  What  are  the  effects  of  certification?  70.  Define  Certificate  of  Deposit.  71.  What  is  meant 
by  accommodation  paper?  72.  Can  the  owner  of  lost  paper  recover  from  the  parties  priniarii\- 
liable?  73.  Can  title  to  commercial  paper  De  made  through  forged  signatures?  74.  What  is 
meant  by  Statute  of  Limitations? 


96 


AGENCY. 


ANALYTICAL  OUTLINE  OF  AGENCY. 


Agency  defined. 

Agency  a  form  of  employment. 

Who  are  principals. 

Who  are  agents. 

Capacity  of  parties 


/  1.    WTio  may  be  nrincipals. 
\2.    Wi  ■     ■ 


/ho  may  be  agents. 
f  1.    Conduct. 

IIow  agents  may  be  appointed -j  2.    Verbally. 

(.  .3.    Written  instrument 

Powers  of  agents. 

Classes ;  *• 


fl.    W'i 
\2.    Un 


ithout  seal. 
Jnder  seal. 


General.- 

Special. - 


—Authority  of. 
-Autliority  of. 


1.    To  third  persons. 


1.    On  contracts. 


2.     For  torts. 


9.    Principal's. 


1.    Liability 


10.     Agent's 


2.    To  agent 

[  3.    Broker's  rights. 
Rights  against  agent. 
Rights  against  third  persons 


1      Duties  and  liabilities  to  his  principal 


{I: 


Compensation. 
Advances. 


General  agent 
Special  agent. 
Negligence. 
Willful  acts. 
Fraud. 
Criminal  acts. 


General  liability. 

Defenses  of  agent  against  principals. 

Good  faith. 

Follow  instructions. 

Skill  and  diligence. 

Depositing  money  in  principal's  name. 

Mixing  property. 

Keeping  accounts. 


1.    On  contracts 


2.    Liability  to  third  persons. 


When  an  agent  is  not  known 

to  be  such. 
Not  known  for  whom  he  acts 
E.xceeds  his  authority. 
By  form,  of  contract. 
Agrees  to  become  so. 


f  1- 


ill.    Termination •;  4. 


2.    For  torts. 

Revocation  of  the  principal. 

Renunciation  by  the  agent. 

By  lapse  of  time. 

Cnmnletion  or  extinction  of  subj'^rt  matter. 

Insanity  of  principal  or  agent. 

Death  of  principal  or  agent. 

Bankruptcy  of  principal. 


AGENCY.  97 


CHAPTER  XXVIII. 


AGENCY. 


496.  Agency  Defined. — Agency  is  a  legal  relationship  founded  on  a  contract, 
express  or  implied,  by  means  of  which  one  party  gives  authority  to  another  to 
carry  on  business  for  him.  He  who,  being  competent  to  do  an  act  for  his  own 
benefit,  or  on  his  own  account,  employs  another  person  to  do  it,  is  called  the 
Principal,  and  he  who  is  thus  employed  is  called  the  Agent.  The  relation  thus 
created  is  called  an  Agency.  The  law  of  agency,  probably,  enters  into  every 
business  enterprise  in  the  world.  It  is  almost  impossible  to  conceive  the  idea 
of  a  single  person  carrying  on  his  business  without  some  assistance.  If  assistants 
be  employed  to  represent  the  principal  there  is  then  the  relation  of  principal  and 
agent. 

497.  Agency  a  Form  of  Employment. — Many  of  our  writers  on  agency  seem 
loth  to  recognize  that  agency  is  a  form  of  employment.  Yet  in  dealing  with  the 
principal's  liability  for  the  agent's  torts  they  invariably  introduce  large  selections 
from  the  law  of  master  and  servant.  It  is  true  that  "employment"  is  a  broader 
term  than  "agency,"  but  in  dealing  with  this  aspect  of  the  subject  we  use  the 
term  "employment"  to  mean  employment  for  the  purpose  of  bringing  the  em- 
ployer into  legal  relations  with  a  third  party.  The  business  of  a  corporation  is 
entirely  conducted  by  agents.  Even  the  huckster  and  cobbler  have  their  agents. 
The  rules  and  principles  of  agency  are  not  numerous  nor  in  themselves  complex, 
but  difficulties  often  arise  in  their  application  which  makes  the  subject  quite 
technical  and  complicated. 

498.  Who  Are  Principals. — A  principal  is  one  who  gives  authority  to  another 
to  do  some  act  for  him,  or  who  adopts  the  unauthorized  acts  of  another.  A 
employs  B  as  his  solicitor.     A  is  a  principal  and  B  an  agent. 

499.  Who  Are  Agents. — An  agent  is  one  duly  authorized  to  act  on  behalf  of 
another,  or  one  whose  unauthorized  acts  have  been  duly  ratified.  From  this 
definition  it  will  be  observed  that  whenever  one  person  employs  another  to 
represent  him,  or  ratifies  the  unauthorized  act  of  another,  the  person  so  employed, 
or  v/hose  unauthorized  acts  arc  ratified,  is  an  agent.  If  A,  unknown  to  B,  should 
buy  a  carload  of  watermelons  for  B,  and  the  latter  receive  and  pay  for  the  same, 
A  would  be  an  agent,  because  B  adopted  A's  unauthorized  act. 


tt  AGENCY. 

CAPACITY  OF  PARTIES. 

500.  Who  May  Be  Principals. — Everyone  of  full  age  and  of  sound  mind  may 
be  a  principal,  unless  laboring  under  some  legal  disability.  A  principal  must  be 
able  to  contract. 

501.  IiJants. — Infants  are  generally  incapable  of  appointing  an  agent.  It 
has,  however,  been  decided  that  an  infant  'may  appoint  another  to  do  an  act 
'.vhich  will  be  beneficial  to  him,  but  not  to  do  an  act  which  will  be  to  his  prejudice. 

502.  Idiots  and  Lunatics. — They  are  wholly  incapable  of  appointing  an  agent, 
because  they  have  no  contractual  capacity. 

503.  Who  May  Be  Agents. — Any  person,  except  a  lunatic,  idiot  or  child  of 
very  tender  years,  may  be  appointed  an  agent.  An  infant  may  act  as  an  agent, 
because  his  act  is  not  his  own,  but  that  of  his  principal.  Therefore,  if  the  princi- 
pal have  capacity  to  contract  the  agent  need  not  have,  because  the  acts  per- 
formed by  the  agent  are  not  in  his  name  or  on  his  account,  but  in  the  name  or  on 
account  of  his  principal,  who  has  contractual  capacity. 

504.  How  Agents  May  Be  Appointed. — An  agent  may  be  appointed  bj^  con- 
duct, verbally  or  by  written  instrument,  sealed  or  unsealed.  The  relation  be- 
tween principal  and  agenf  originates  in  a  contract;  therefore,  no  one  can  be  made 
the  principal  of  another  without  his  consent.  Neither  can  a  person  become  the 
agent  of  another  without  that  other's  consent,  expressed  or  implied. 

^"^A  person  may,  however,  ratify  the  unauthorized  acts  of  another,  thus 
creating  the  relation  of  principal  and  agent.  The  ratification  must,  to  be  valid, 
be  with  full  knowledge  by  the  principal  of  all  the  material  facts  in  the  case.  A 
sent  B  money  with  which  to  purchase  a  lot  on  Charles  street.  B,  believing  a 
better  investment  could  be  made  by  purchasing  a  lot  on  Bolton  street,  so  invested 
the  money,  and  wrote  A  that  "the  property  was  purchased  and  payment  made." 
A  was  sued  for  the  balance  of  the  purchase  money,  but  refused  payment,  because 
he  had  not  authorized  the  purchase  of  the  lot  on  Bolton  street,  and  that  although 
he  had  ratified  the  purchase  as  represented  to  him,  he  was  not  bound  by  such 
ratification,  because  the  agent  did  not  purchase  the  property  he  was  instructed 
to  buy,  and  in  making  his  report  he  concealed  the  fact  that  he  had  violated  his 
instructions,  and  led  him  to  believe  the  property  on  Charles  street  was  purchased, 
so  that  the  ratification  was  not  made  with  full  knowledge  of  all  the  material 
facts.  A's  defense  is  good.  He  need  not  pay  the  purchase  money.  Had  the 
agent  informed  B  that  he  had  bought  property  on  Bolton  street,  and  the  principal 
consented  to  such  purchase,  the  principal  would  be  bound,  because  of  his  ratifica- 
tion of  the  agent's  acts,  although  they  were  unauthorized.  The  agent  is  liable  to 
the  jiH-inoipnl  for  damages  and  a  return  of  the  money  for  violating  his  inntructione. 

506.  Appointment  Under  Seal. — It   is  never  necessary  that   the  authority 


AGENCY.  99 

given  to  the  agent  should  be  reduced  to  writing,  signed  and  sealed  by  the  prin- 
cipal, except  where  the  thing  to  be  done  by  the  agent  requires  a  sealed  instru- 
ment. For  instance,  if  A  appoint  B  as  his  agent  to  sell  and  convey  certain  real 
estate  belonging  to  A,  then  B,  as  he  has  a  deed,  which  is  a  sealed  instrument,  to 
execute,  must  receive  his  authority  under  A's  hand  and  seal.  An  appointment 
thus  made  is  called  "power  of  attorney;"  that  is,  A  gives  B  a  power  of  attorney, 
which  may  be  general  in  its  nature,  i.  e.,  to  do  and  perform  every  act  requisite 
and  necessary  to  be  done  in  the  principal's  business,  or  limited,  i.  e.,  to  do  s^'me 
special  or  particular  thing. 

Power  of  Attorney. 

507.  General  Form. — For  any  specific  act: 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  thai  I,  J,  H,  Easterda))  of  the  City  of  Toledo, 
Ohio,  do  hereby  appoint  J.  U.  Dennis,  of  the  City  of  Chicago,  Ills.,  to  be  my  agent  and  attorney 
for  me  and  in  my  name,  to  {here  insert  the  act  or  acts  to  be  done  by  the  attorney). 

As  'witness  my  hand  and  seal  this  first  day  of  September,  in  the  year  nineteen  hundred 
and  five 

Test:  C,  L,  M err t ken,  J,  H,  Easterday,    [seal] 


Power  of  Attorney. 

508.  Mercantile  Agent. — To  manage  personal  business: 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  that  I,  Willis  Myers,  of  Boston,  Mass.,  do 
hereby  constitute,  nominate  and  appoint  Philip  Maguire,  of  Boston,  to  be  my  true,  sufficient 
and  laiuful  attorney,  for  me  in  my  name,  place  and  stead,  to  ask,  demand  and  sue  for, 
reco<ver  and  recei'be  all  sums  of  money  ivhich  may  be  due  to  me  from  all  persons  and  corpora- 
tions ivhatsoe'oer,  and  to  gi'be  discharges  thereof ;  to  dra<w  and  accept  drafts  or  bills  of 
exchange  in  my  name}  to  dra'zu  and  sign  all  checks  'which,  in  his  judgment,  may  be  necessary 
for  the  transaction  of  my  business  upon  the  American  National  Bank  of  Boston,  and  to  endorse 
all  checks  dra'wn  to  my  order;  to  sell,  transfer  and  assign  all  stocks  ^which  may  be  standing 
in  my  name;  to  recei^oe  a,ll  dividends  nom)  due,  or  <xvhich  may  become  due,  upon  all  stocks  or 
securities  held  by  me,  and  the  interest  upon  my  bonds,  notes  or  other  evidences  of  debt  held  by 
me,  and  to  give  receipts  in  my  name. 

As  vjttness  my  hand  ana  seal  this  first  day  of  March,  in  the  year  nineteen  hundred 
and  six. 

Test:   H.  M.  Rowe,  WUUs  Myers,    [otai^ 


100  POWERS  OF  AGh'XTS 


CHAPTER  XXIX. 

POWERS  OF  AGENTS. 

509.  Authority  of  Agents. — This  question  embraces  the  whole  subject  of  the 
rights  of  principals  against  their  agents,  the  rights  of  agents  against  their  princi- 
pals, the  rights  of  third  persons  against  principals,  the  rights  of  principals  against 
third  persons,  and  the  rights  of  third  persons  against  agents,  and  the  rights  of 
agents  against  third  persons.  The  extent  of  an  agent's  authority  and  power 
depends  upon  the  nature  and  character  of  the  appointment,  and  whether  he  is  a 
general  or  special  agent.  Hence,  agents  are  thus  divided  into  two  classes,  viz., 
1.  General;  2.  Special. 

510.  Authority  of  General  Agents. — A  general  agent  has  not  only  the  author- 
ity conferred  upon  him  by  his  principal,  but  all  the  powers  that  are  usually  exf^r- 
cised  b}'  agents  in  that  particular  line  of  business  or  employment.  This  class 
includes  the  great  mass  of  commercial  agents. 

511.  Authority  of  Special  Agents. — A  special  agent  is  one  who  has  only  the 
authority  committed  to  him  by  his  principal.  Persons  dealing  with  this  class 
of  agents  are  put  upon  inquiry  to  know  what  their  powers  are.  They  are  not 
clothed  with  any  implied  authority. 

The  distinction  between  a  general  and  special  agent  is  that  the  former,  hav- 
ing a  wider  scope,  both  of  duty  and  authority,  represents  his  principal  in  all 
matters  of  a  particular  kind  or  growing  out  of  a  particular  employment,  and  this 
may  be  in  one  or  more  places;  while  the  latter  is  one  whose  authority  is  definitely 
limited,  and  whose  duty  is  specified.  A  person  who  is  authorized  to  execute  all 
deeds,  sign  all  contracts  or  purchase  all  goods  required  in  a  particular  trade, 
business  or  employment  is  a  general  agent  in  that  trade,  business  or  emplo5'ment. 
But  a  person  authorized  to  execute  a  particular  contract,  or  to  purchase  a 
particular  parcel  of  goods  is  a  special  agent.  But  it  is  not,  however,  the  doing  of 
a  particular  thing  that  is  the  test  whether  or  not  a  person  be  a  special  agent. 
A  lawyer,  employed  to  try  a  case,  is  a  general  agent,  although  employed  for  a 
particular  purpose. 

PRINCIPAL'S  LIABILITY  TO  THIRD  PERSONS. 

512.    On  Contracts  Made  by  General  Agents.-  The  general  rule  is  that  an  agent, 
known  to  be  such,  and  acting  within  the  scope  of  his  authority,  and  through  a 


tOWERS  OF  AGENTS.  101 

known  principal,  binds  that  principal,  and  not  himself.  The  acts  of  an  agent, 
done  within  the  scope  of  his  employment,  and  within  the  limits  of  the  authority 
which  he  possesses,  are  regarded  as  the  acts  of  the  principal,  and  not  the  acts 
of  the  agent.  The  agent,  in  this  case,  incurs  no  personal  responsibility  whatever. 
®^*In  case  of  a  general  agent,  the  principal  will  be  bound,  although  the  agent 
exceeds  the  authority  given,  so  long  as  he  does  not  go  beyond  the  powers  which 
are  usual  and  customary  in  his  business  such  as  are  exercised  by  other  agents  of 
his  vocation.  A,  the  manager  of  a  branch  of  B  &  Co.'s  shoe  stores,  is  instructed 
not  to  warrant  a  certain  case  of  shoes  which  the  firm  ships  him.  It  has  been  the 
practice  and  custom  to  give  a  warranty  with  all  shoes  sold.  A,  contrary  to  the 
express  instruction,  warrants  them.  The  firm  is  liable  for  the  warranty  so  given. 
^^^A  general  agent's  authority  cannot  be  limited  by  private  instructions.  A 
person  dealing  with  such  an  agent  is  not  supposed  to  inquire  if  his  power  is 
limited.  A  dry  goods  firm  instructs  its  general  manager  to  purchase  a  certain 
lot  of  dry  goods.  The  manager,  instead,  buys  groceries  and  hardware.  The  firm 
would  not  be  liable,  because  the  agent  did  not  keep  within  the  scope  of  the  busi- 
ness for  which  he  was  appointed.  But  had  he  bought  dry  goods,  even  a  much 
larger  amount  than  he  was  instructed  to  buy,  the  firm  would  be  liable,  because 
that  would  have  been  within  the  general  scope  of  his  employment. 

515.  On  Contracts  Made  by  Special  Agents. — The  principal  is  not  liable  on 
contracts  made  by  a  special  agent  if  he  in  any  way  exceed  the  express  authority 
given  him.  A  special  agent  has  no  implied  power  like  a  general  agent.  Every- 
one dealing  with  such  an  agent  is  bound  at  his  peril  to  ascertain  the  scope  of  his 
authority.  A,  the  proprietor  of  a  restaurant,  because  of  the  absence  of  B,  who 
does  the  buying  for  the  establishment,  sends  C,  the  waiter,  to  buy  fifty  water- 
melons, and  instructs  him  not  to  pay  more  than  twenty-five  cents  apiece.  The 
waiter  contracted,  on  behalf  of  his  principal,  to  pay  thirty  cents  apiece.  The 
principal  is  not  liable.  He  can  justly  refuse  payment,  because  C  was  a  special 
agent,  and  appointed  to  do  a  single  thing  in  a  certain  way.  He,  having  exceeded 
his  instructions,  binds  no  one  but  himself.  He  who  deals  with  a  special  agent  does 
so  at  his  own  risk.  If,  in  the  above  case,  B  had  received  the  same  instructions  as 
C,  and  had  bought  the  melons,  agreeing  to  pay  thirty  cents  or  even  more,  A 
would  be  bound,  because  B  is  a  general  agent,  he  doing  the  buying  for  the 
restaurant. 

516.  Liability  of  Undisclosed  Principal. — An  undisclosed  principal  is  bound 
by  the  acts  of  his  agent  when  he  is  discovered,  and  so  he  may  at  any  time  make 
himself  known  and  obtain  the  fruits  of  his  agent's  work.  ®^^If  a  third  party  has 
dealt  with  an  agent,  supposing  him  to  be  principal,  then  such  third  party  is 
entitled  to  his  set-off  and  other  equities  as  against  the  principal,  for  the  prin- 
cipal must  run  these  risks,  since  it  is  he  who  puts  the  agent  forward  to  be  trusted 


loa  Fowhh's  or  a<!I':.\ts. 

WRONGFUL  ACTS  OF  AGENTS. 

518.  General  Liability. — Hithorto  we  have  only  considered  the  responsibility 
of  the  principal  to  third  parties  on  contracts  made  by  their  agents.  But  he  is 
also  liable,  and  that  to  a  considerable  extent,  for  wrongs  committed  by  his  agent 
while  engaged  in  his  services.  He  will  be  so  in  every  instance  in  which  he  has 
expressly  commanded  the  wrong  to  be  done,  or  gives  orders  which  can  be  exe- 
cuted only  by  its  commission. 

519.  Negligence  of  Agent. — The  principal  is  liable  to  third  persons  for  negli- 
gence and  omission  of  duty  of  the  agent,  if  the  same  be  committed  in  the  regular 
course  of  his  employment  and  within  the  scope  of  his  authority,  although  he  did 
not  authorize  or  know  5f  such  misconduct,  or  even  though  he  forbade  it.  A,  the 
proprietor  of  a  blacksmith  shop,  instructed  B,  one  of  his  servants,  to  shoe  a  custo- 
mer's horse.  The  servant,  by  his  carelessness  and  neglect  in  properly  shoeing  the 
horse,  made  him  lame.  The  customer  sues  A  to  recover  damages.  He  can 
succeed,  for  A  is  liable.  Again,  suppose  a  coachman  drives  his  employer's  car- 
riage so  unskillfully  that  he  runs  into  C's  carriage  and  injures  the  occupant  and 
also  demolishes  the  carriage.  The  principal  or  employer  will  be  liable  to  C  for 
damages  because  of  the  above  rule. 

520.  Willful  Acts  of  Agents. — Though  the  employer  is  answerable  for  the 
negligence  of  his  agent  while  engaged  in  his  services,  he  is  not  liable  for  his  willful 
and  malicious  acts,  unless  done  in  the  course  of  his  employment.  Thus,  "if  a 
servant  driving  a  carriage,  in  order  to  effect  some  purpose  of  his  own,  wantonly 
strike  the  horses  of  another  person  and  produces  an  accident,  the  master  is  not 
liable,  though  if,  intending  to  execute  his  master's  orders,  he  strike,  but  injudici- 
ously and  U)  extricate  himself  from  a  difficulty,  that  will  be  negligent  and  care- 
less condu'  t,  for  which  the  master  will  be  liable."  Suppose  a  conductor  of  a 
street  car  in  ejecting  a  passenger  because  he  would  not  pay  his  fare,  strikes  the 
passengei  a  blow  which  was  wholly  unnecessary,  and  through  the  force  of  the 
blow  the  passenger  was  severely  injured,  the  company  would  be  liable  in  such  a 
case  for  the  injury  sustained,  because  the  act  was  done  in  the  course  of  the  con- 
ductor's employment. 

"*The  student  should  draw  the  distinction  between  the  case  just  illustrated 
and  the  following:  If  the  passenger,  having  paid  his  fare,  and  otherwise  properly 
conducting  himself,  were  assaulted  by  the  conductor,  simply  that  he  might  have 
revenge  for  some  latent  spite  which  he  had  against  the  passenger,  the  company 
would  not  be  liable,  because  the  act  done  was  not  in  pursuance  of  the  conductor's 
employment. 

522.  Fraud  of  Agents. — A  principal  is  usually  held  to  be  liable  to  third  per- 
sons for  the  deliberate  fraud  of  his  agent,  committed  in  the  execution  of  his 


POWERS  OF  AGENTS.  108 

employment.  A  clerk  in  a  jewelry  store  represents  an  imitation  of  a  diamond  to 
be  genuine.  The  customer,  relying  upon  the  representation,  buys  the  jewel. 
Upon  discovering  the  fraud  practiced  on  him,  the  customer  returns  the  false 
jewel,  and  demands  a  return  of  the  money.  B,  the  proprietor,  claims  he  knew 
nothing  about  the  fraud,  was  innocent  of  any  knowledge  that  had  been  practiced, 
and,  therefore,  was  not  liable.  But  the  proprietor  is  liable,  and  can  be  made  to 
return  the  money.  The  reason  for  this  given  by  Lord  Chief  Justice  Holt  appears 
to  be  a  sensible  one.  "Seeing,"  says  he,  "that  one  of  two  innocent  persons  must 
be  the  loser  by  the  deceit,  it  is  more  reasonable  that  he  who  employs  and  confides 
in  the  deceiver  should  be  the  loser  than  a  stranger."  This  maxim  applies  to 
cases  of  fraud  only, 

523.  Criminal  Acts  of  Agents. — The  principal  is  not  generally  criminally 
liable  for  acts  of  his  agent  unless  he  commanded  them.  This  means  that  he 
cannot  be  arrested,  fined,  imprisoned  or  prosecuted  for  the  criminal  acts  of  his 
agent.  A  sends  B,  his  agent,  to  collect  a  bill  of  C.  Payment  being  refused,  B 
and  C,  get  into  an  altercation.  In  a  fit  of  anger,  B,  the  agent,  kills  C.  A  is  in  no 
way  liable  to  be  prosecuted  for  his  agent's  act.  However,  in  case  of  an  indict- 
ment for  a  libel  published  in  a  newspaper,  it  was  held  that  the  person  who  fur- 
nished the  means  for  carrying  on  and  derived  the  profits  from  such  newspaper 
was  criminally  answerable  for  what  appeared  therein,  though  it  could  not  be 
shown  that  he  was  concerned  in  the  individual  publication. 

PRINCIPAL'S   LIABILITY  TO  AGENT. 

524.  Compensation. — The  chief  right  of  the  agent  is  to  receive  his  remunera- 
tion or  commission,  the  amount  of  which  is  fixed  by  contract  between  him  and 
his  employer,  or  by  usage  of  trade  in  like  cases.  But  no  person  can  recover 
compensation  if  the  services  were  rendered  without  request,  expressed  or  implied. 
He  may,  however,  be  deprived  of  it  in  several  ways,  which  will  be  noticed  when 
we  come  to  speak  of  the  agent's  duties. 

"^If  an  agent  do  an  act  which  is  illegal,  although  authorized  to  do  so  by  his 
principal,  he  cannot  recover  any  compensation.  A  certain  gambling-house  em- 
ployed B  to  sell  policy  slips,  which  is  forbidden  by  statute.  At  the  end  of  six 
months  B  is  discharged,  the  firm  owing  him  at  that  time  $300  as  salary  due  and 
unpaid.  B  sues  to  recover.  He  cannot  succeed,  for  he  was  doing  that  which 
the  law  prohibits. 

526.  Advances. — Besides  commission,  he  has  a  right  to  charge  his  principal 
with  all  advances  and  disbursements  made  by  him  in  the  regular  course  of  his 
employment,  when  such  are  necessary  and  proper,  i.  e.,  storage,  drayage,  etc., 
for  there  is  an  implied  request  from  the  principal  to  make  such  disbursements. 

527.  Broker's  Rights  to  Compensation. — If  an  agent  disclose  that  property 


1(M  POWERS  OF  AGENTS. 

isj  for  sale,  aud  iuUoduce  uegotiatious  between  the  owner  and  the  purchaser  which 
result  in  a  sale,  then  the  agent  is  entitled  to  compensation.  All  that  the  agent 
need  do  is  to  bring  the  owner  and  purchaser  together.  If  the  sale  can  be  re- 
ferred to  the  instrumentality  of  the  broker,  as  through  advertisement,  the  broker 
can  recover  his  commission.  But  the  mere  production  of  a  party  who  enters  into 
a  contract  to  buy  is  not  sufficient  to  entitle  the  agent  to  compensation,  as  that 
party  may  break  his  contract.  The  sale  must  be  actually  consummated,  but  if, 
by  the  fault  of  the  owner,  it  be  not  consummated,  then  the  broker  is  entitled  to 
his  commission. 

528.  Rights  of  Principal  Against  Agent. — The  right  of  the  principal  against 
his  agent  depends  largely  on  the  instructions  which  were  given  in  the  appoint- 
ment. Be  those  what  they  may,  it  is  his  duty  to  carry  them  into  effect  to  the 
very  letter.  He  can  require  the  agent  to  render  an  account  at  any  time  in  rela- 
tion to  the  agency. 

"°The  relation  of  the  principal  and  agent  is  a  fiduciary  one.  A  principal 
who  intrusts  an  agent  to  bind  him  trusts  in  that  agent's  skill,  intelligence  and 
experience,  and,  above  all,  in  his  honesty. 

^^"An  agent  must  exercise  reasonable  skill  and  ordinary  diligence  in  the  exe- 
cution of  the  trust  imposed  upon  him,  and  for  injuries  to  his  principal,  caused  by 
the  want  of  such  skill  and  want  of  ordinary  care,  he  will  be  liable.  Thus  A,  the 
holder  of  a  note  made  by  B  and  endorsed  by  C,  leaves  it  at  a  bank  for  collection. 
The  bank,  through  its  own  neglect,  failed  to  present  the  note  at  maturity,  thus 
releasing  the  endorser.  The  maker,  B,  is  insolvent.  The  bank  will  have  to 
make  good  the  loss  to  A,  for  it  was  through  its  own  want  of  reasonable  diligence 
that  C,  from  whom  it  might  have  been  collected,  was  discharged  from  liability. 

531.  Rights  of  Principal  Against  Third  Persons. — Whatever  an  agent  does 
within  the  scope  of  his  authority  is,  in  legal  effect,  the  act  of  the  principal,  who  is 
entitled  to  all  the  advantages  and  benefits  arising  from  the  acts  and  contracts  of 
such  agent.  He  is  also  entitled  to  all  the  remedies  which  he  would  have  were  the 
contracts  made  by  him  personally.  ^^^If  the  principal  give  notice  to  third  parties 
not  to  pay  money  to  an  agent  unless  agent  has  a  lien  or  some  superior  right  to  the 
money,  the  amount  of  any  payment  to  the  agent  after  such  notice  may  be  recov- 
ered by  the  principal  from  the  debtor,  thus  requiring  him  to  make  payment  the 
second  time. 

CASES. 

(Give  reasons  for  answers.) 

1.  A,  who  represented  himself  as  an  agent  to  secure  subscribers  for  a  monthly  magazine, 
obtained  twenty-five  subscribers,  also  collected  the  subscription  price.  The  subscribers,  in 
answer  to  a  complaint,  received  word  from  the  publishers  that  A  was  not  authorized  to  represent 
them,  and  that  they  would  not  ratify  his  unauthorized  acts.     The  subscribers  sued  the  publishers 


POWERS  OF  AGENTS.  105 

to  comp«l  them  in  send  the  uiagaziae  for  one  year  as  per  agreement  made  with  A.     Can  they 
succeed  T^*" 

2.  B,  a  boy  fourteen  years  of  age,  who  was  employed  in  A's  office,  was  instructed  to  negotiate 
for  the  purchase  of  500  bales  of  cotton  at  a  certain  price.  The  boy  made  the  purchase,  but  A 
sought  to  avoid  the  contract  because  of  a  decline  in  the  price  of  cotton.  When  A  was  sued  he 
set  up  as  a  defense  that  the  boy,  being  a  minor,  had  no  capacity  to  contract.  Is  his  defense 
goodT^"* 

3.  A  of  Washington  wrote  to  a  real  estate  agent  of  Chicago  to  sell  the  house  and  lot  No. 
260  Rush  street.  The  only  authority  possessed  by  the  real  estate  agent  to  negotiate  the  sale 
was  the  letter  thus  written.  The  property  was  sold  and  a  deed  executed  by  the  agent  in  the 
name  of  his  principal.     Is  the  sale  valid  ?^'''' 

4.  A  authorized  his  broker  to  purchase  10,000  bushels  of  wheat,  and  instructed  him  to  buy 
only  for  cash.  The  broker  bought  the  wheat  to  be  paid  on  demand  at  the  current  price  at  the 
time  of  demand.     Is  the  principal  liable  on  the  contract  ?^'^ 

5.  A  authorized  B,  his  coachman,  to  purchase  a  carriage,  and  instructed  him  not  to  pay 
more  than  $150.  B  contracted  for  the  carriage  for  $175.  A  was  sued  for  the  purchase  price. 
Is  he  liable  ?^i5 

6.  It  is  the  custom  in  New  York  City  and  other  cities  for  the  theaters  to  make  certain 
reductions  in  cases  of  a  sale  of  70  or  100  seats  to  one  person,  club  or  organization.  Because  of  the 
heavy  expenses  in  securing  a  certain  opera  company,  the  managers  of  the  Academy  of  Music 
instructed  their  ticket  agent  to  allow  no  rebate.  Contrary  to  their  instructions,  the  agent  sold 
to  B,  the  secretary  of  a  choral  society,  150  $1.50  seats  at  $1.  Are  the  managers  bound  by  the 
sale  thus  made  contrary  to  their  instructions?^'^ 

7.  An  action  was  brought  by  A  against  B  to  recover  compensation  for  injuries  sustained 
by  him  through  the  alleged  negligent  driving  of  B's  servant.  The  facts  were  that  while  A  was 
crossing  a  certain  street  in  New  York  City  B's  servant  so  negligently  and  improperly  drove  the 
horse  and  cart  of  his  master  that  the  horse  and  cart  ran  against  and  struck  A  with  great  violence 
and  threw  him  down,  by  reason  whereof  he  was  much  hurt  and  injured.     Can  A  succeed?^'* 

8.  B,  a  servant  of  A's,  wiliiully  drove  A's  carriage  against  C's,  whereby  C  was  thrown  from 
his  buggy  and  greatly  hurt.  A  was  not  present,  nor  did  he  in  any  manner  direct  or  assent 
to  the  act  of  his  servant.  C  sues  A  to  recover  damages  caused  by  his  servant.  Can  he 
succeed?"" 

9.  An  action  was  brought  by  B  against  A  &  Co.  in  a  sale  by  them  to  B  of  a  large  quantity 
ot  cheese  which  was  represented  to  be  of  good  quality.  The  facts  were  that  A  &  Co.  employed 
C  to  manufacture  cheese  for  them  at  a  specified  sum  per  hundred  pounds.  The  cheese  was  made 
from  milk  furnished  by  A  &  Co.  and  their  associates.  C  in  order  that  he  might  increase  the 
output,  thereby  increasing  his  income,  obtained  daily  a  large  quantity  of  sour  curd,  which  would 
not  make  good  cheese,  and  worked  it  up  by  placing  it  in  the  center  of  the  cheese  made  from  sweet 
curd.  This  greatly  impaired  its  value.  A  &  Co.  were  innocent  of  the  acts  of  their  agent.  On 
these  facts,  should  B  recover?"^ 

10.  A,  the  proprietor  of  a  tobacco  store,  employs  B  to  sell  cigars,  etc.,  on  Sunday,  which 
the  law  prohibits.  After  working  four  Sundays,  B  demands  payment  for  his  services,  which 
is  refused.     Can  B  recover?"^ 

11.  A,  who  represented  himself  as  a  skillful  and  experienced  gardener,  was  employed  by 
B  to  work  in  his  garden  cultivating  some  small  plants.  The  plants  died.  On  , .  examination 
as  to  the  cause  it  was  found  that  A  had  cultivated  the  soil  too  closely  to  the  roots,  and  in  many 
cases  had  even  cut  them  off.     B  sued  A  to  recover  damages.     Can  he  succeed?"" 


106  DUTIES  AXf)  I.IAHILITIh'S  OF  ACI-JXTS. 

12.  A  notitifd  ]i  nut  to  puy  tlie  inonuy  to  his  agent  for  the  corn  which  A's  agent  had  sold 
to  B.  Heedless  of  the  notice,  B  paid  the  agent,  because  he  had  previously  transacted  his  busi- 
ness with  him.  The  agent  absconds  with  the  money,  and  A  sues  B  to  recover.  Should  he 
succeed?"' 


CHAPTER  XXX. 
DUTIES  AND  LIABILITIES  OF  AGENTS. 

533.  General  Liability. — Whenever  an  agent  violates  his  duties  or  obliga- 
tions  to  his  principal,  whether  it  be  by  exceeding  his  authority  or  by  positive 
misconduct,  or  by  mere  negligence  or  omission  in  the  proper  functions  of  his 
agency,  or  in  any  other  manner,  and  any  loss  or  damage  thereby  falls  on  his 
principal,  he  is  responsible  therefor,  and  bound  to  make  a  full  indemnity.  The 
loss  or  damage  need  not  be  directly  or  immediately  caused  by  the  act  which  is 
done.  Thus,  if  an  agent  should  knowingly  deposit  goods  in  an  improper  place, 
by  which  they  are  destroyed  by  fire,  he  will  be  responsible  for  the  loss,  although 
the  loss  is  not  the  direct  consequence  of  his  negligence,  but  of  the  fire;  yet  the 
loss  would  not  have  occurred  except  from  such  negligence.  So,  if  an  agent, 
who  is  bound  to  procure  insurance  for  his  principal,  neglect  to  do  so,  and  a  loss 
occurs  to  his  principal  from  a  peril  ordinarily  insured  against,  the  agent  will 
be  bound  to  pay  the  principal  the  full  amount  of  the  loss  occasioned  by  his 
negligence. 

534.  Specific  Duties. — The  law  makes  no  distinction  between  the  duties  and 
liabilities  of  general  and  special  agents.  For  a  violation  of  the  trust  conferred 
upon  them  they  are  alike  fiable  to  their  principals.  We  shall  consider  the  fol- 
lowing specifically-named  duties: 

1.  Good  faith. 

2.  Follow  instructions. 

3.  Skill  and  diligence. 

4.  Depositing  money  in  principal's  name. 

5.  ]\Iixing  property. 

535.  Good  Faith. — Because  of  the  confidence  which  has  been  reposed  in  the 
agent,  he  is  required  to  exercise  the  utmost  good  faith.  The  law  will  not  even 
allow  an  agent  to  put  himself  in  a  place  of  temptation.  Thus,  an  agent,  employed 
to  sell,  is  not  allowed  to  be  the  purchaser,  unless  he  make  known  to  his  principal 
that  he  intends  to  become  such.  The  principal  can  even  then  refuse  to  ratify  it. 
Neither  can  an  agent,  employed  to  purchase,  be  the  seller,  unless  there  was  an 


DUTIES  AND  LIABILITIES  OF  AGENTS.  107 

understanding  to  that  effect.  A  authorized  [^,  his  broker,  to  buy  lOUO  shares 
of  B.  &  0.  R.  R.  stocks.  B  sold  his  own  stocks  to  A.  The  sale  was  not  binding 
on  A,  although  there  was  no  fraud,  and  even  though  the  price  was  below  the 
market  quotations.  ^^"Neither  can  a  person  act  as  agent  for  two  principals  in 
the  same  transaction.  He  cannot  serve  two  masters.  For  example,  A  author- 
ized B  to  purchase  500  shares  of  Chicago  gas  stock.  C  appointed  B  as  his  agent 
to  sell  a  like  number  of  shares  of  the  same  stock.  B's  duty  to  A  is  to  buy  the 
stocks  for  the  lowest  price  possible,  and  his  duty  to  C  is  to  sell  the  stocks  for  the 
highest  price  possible.  It  is  evident  that  he  cannot  act  for  the  best  interests  of 
both  A  and  C.  If  he  favor  one  it  is  at  the  loss  and  expense  of  the  other.  There- 
fore, if  B  sold  C's  stock  to  A,  neither  A  nor  C  would  be  bound  by  the  contract. 
B,  the  agent,  would  also  forfeit  his  commission.  A  contract  thus  made  is  not 
void,  but  voidable  by  either  party.  An  agent  may,  however,  represent  both 
buyer  and  seller  in  the  same  transaction  when  he  acts  with  full  information  and 
knowledge  of  both  principals  and  with  their  consent. 

537.  Follow  Instructions. — When  an  agent  has  received  instructions  it  is  his 
duty  to  adhere  faithfully  to  those  instructions.  If  he  do  not,  and  a  loss  occurs, 
he  will  be  personally  liable  to  his  principal  as  well  as  forfeit  his  compensation.  A 
shipped  B,  to  be  sold  for  the  former,  5000  head  of  cattle,  and  instructed  B  not  to 
hold  the  cattle  longer  than  November  1.  At  that  time,  the  market  being  dull, 
B  did  not  sell,  but  held  the  cattle  a  few  days  longer,  during  which  time  there  was 
still  a  further  decline  in  prices.  B  will  be  personally  liable  for  the  loss  A  sustained 
which  would  be  the  difference  in  the  price  of  cattle  on  November  1  and  the  day 
on  which  they  were  sold,  as  well  as  losing  his  commission  for  disobeying  instruc- 
tions. If  the  agent  have  no  specific  instructions,  he  must  follow  the  accustomed 
course  of  business. 

538.  Skill  and  Diligence. — As  previously  stated,  an  agent  is  bound  to  exer- 
cise ordinary  skill  and  diligence.  If  he  do  not,  and  a  damage  is  sustained  thereby 
the  principal  need  not  pay  him  for  his  services. 

539.  Depositing  Money  in  Principal's  Name. — It  is  the  duty  of  the  agent  to 
deposit  money  belonging  to  his  principal  in  his  principal's  name.  If  he  do  not 
do  so  he  will  be  personally  liable  for  any  loss,  i.  e.,  insolvency  of  bank.  A,  having 
money  belonging  to  his  principal,  deposited  the  money  in  his  own  name  in  the 
First  National  Bank,  which  was  reputed  to  be  the  best  in  the  city.  The  bank 
failed.  The  agent  must  make  good  the  loss  to  his  principal.  So,  also,  if  an 
agent  mix  the  money  of  his  principal  with  his  own,  and  the  same  is  lost  by  em- 
bezzlement, the  agent  is  liable  to  his  principal. 

540.  Mixing  Property. — It  is  also  the  duty  of  the  agent  to  keep  his  principal's 
property  separate  from  all  others,  so  that  it  may  be  identified  or  distinguished  at 


108  DUTIES  AND  LIABILITIES  OF  AGENTS. 

any  time.  Should  he  disregard  this  rule  the  property  so  mixed  ahall  become  the 
principal's.  B  shipped  to  a  commission  merchant  to  be  sold  on  his  own  account 
100  bushels  of  potatoes,  which  were  of  an  extra  fine  quality.  The  commission 
merchant  mixed  about  seventy-five  bushels  of  his  own,  which  were  small  and 
inferior,  with  B's,  in  order  that  he  might  sell  his  to  a  better  advantage.  The 
potatoes,  175  bushels,  belong  to  B,  and  he  can  claim  the  proceeds  when  they  are 
sold.  The  reason  for  this  is  that  it  acts  as  a  punishment  for  his  dishonesty. 
This  practice  of  mixing  property  prevails  quite  extensively  among  commission 
merchants.  But  it  is  difficult  to  prove  such  charges  against  them  unless  a  detec- 
tive has  been  following  the  goods. 

541.  Keeping  Accounts. — It  is  a  very  essential  part  of  an  agent's  duties  that 
he  should  keep  a  clear  and  accurate  account  of  his  principal's  business  and  com- 
municate the  result  from  time  to  time  to  his  employer.  In  stating  this  account 
the  principal  should  be  given  credit  for  every  increase  made  from  his  own  prop- 
erty. Thus,  an  agent  who  has  made  interest  upon  his  principal's  money  will  be 
obliged  to  account  for  it.  The  agent  must  credit  his  principal  with  all  money 
actually  paid  him,  and  with  all  losses  incurred  by  his  own  negligence,  or  even 
through  the  imposition  of  a  forger. 

'^^-If  the  agent  clandestinely  speculate  with  his  principal's  money  or  other 
property,  whatever  is  gained  thereby  belongs  to  the  principal.  But  if  the  agent 
lose  in  such  a  speculation  the  loss  falls  upon  the  agent.  A,  who  was  buying  corn 
for  B  for  speculation,  bought  a  large  quantity  for  himself  at  a  very  low  price,  and 
sold  it  at  a  profit  without  B's  knowledge.  A  must  account  to  B  for  all  the 
profit. 

543.  Defenses  of  Agent  Against  Principal, — The  principal  will  not  be  allowed 
to  maintain  any  suit  for  redress  against  his  agent  if  the  subject-matter  of  the 
agency  is  an  illegal  or  an  immoral  transaction,  or  is  founded  in  fraud  or  against 
public  policy.  Thus,  if  goods  are  intrusted  to  an  agent  to  be  smuggled  into  a 
country,  and  sold  there  against  its  laws,  the  principal  can  neither  recover  the 
goods  nor  maintain  a  suit  for  the  proceeds  of  the  goods  if  sold.  In  such  cases  the 
right  to  recover  is  necessarily  founded  upon  a  contract  for  illegal  purposes.  But 
where  the  recovery  from  an  agent  is  not  based  upon  an  illegal  contract,  but  upon 
a  new  collateral  undertaking  not  illegal,  although  resulting  from  an  illegal  con- 
tract, it  may  be  recovered.  Thus,  if  an  agent  has  received  money  from  a  third 
person  for  his  principal,  which  money  accrued  from  an  illegal  transaction  between 
the  principal  and  such  third  person,  who  had  no  connection  with  the  agent,  the 
principal  may  recover  it  from  his  agent,  for  as  between  them  the  receipt  of  the 
money  for  the  principal  is  upon  a  legal  contract,  although  the  money  itself  accrued 
under  a  former  illegal  transaction. 


DUTIES  AND  LIABILITIES  OF  AGENTS.  109 

LIABILITY  OF  AGENTS  TO  THIRD  PERSONS. 

544.  On  Contracts. — As  previously  stated,  whatever  an  agent  does  within 
the  scope  of  his  employment  binds  his  principal,  and  not  himself,  but  an  agent 
may  make  himself  liable  on  contracts  that  he  makes  for  another  in  any  of  the 
following  ways: 

1.  When  an  agent  is  not  known  to  be  such. 

2.  When  an  agent  is  known  to  be  such,  but  not  known  for  whom  he  acts. 

3.  When  an  agent  exceeds  his  authority. 

4.  By  the  form  of  contract. 

5.  Expressly  agrees  to  become  so. 

545.  When  an  Agent  Is  Not  Known  to  Be  Such. — A  person  may  be  acting 
entirely  under  the  instructions  and  for  the  benefit  of  another  party,  and  yet  he 
may  not  be  known  to  be  acting  for  another.  In  such  a  case  the  agent  incurs  the 
responsibility  of  a  principal.  He  subjects  himself  to  personal  liability,  and  this 
is  true  even  after  the  principal  has  been  disclosed  at  any  subsequent  stage  of  the 
transaction,  unless  the  third  party  has  lost  his  right  to  hold  the  agent  b}^  elect- 
ing to  hold  the  principal.  A,  acting  as  agent  for  B  in  buying  grain,  purchased  a 
large  quantity  in  his  own  name.  B  furnished  A  money  with  which  to  make  a 
part  payment.  Subsequently  B  failed  in  business,  and  A  was  sued  for  the  balance 
of  the  purchase  money.  A  is  personally  liable  and  must  settle  the  account, 
although  he  had  no  interest  in  the  grain  and  no  benefit  from  the  transaction 
except  to  receive  his  commission. 

546.  When  an  Agent  Is  Known  to  Be  Such,  but  it  Is  Not  Known  for  Whom 
He  Acts. — One  may  constitute  another  his  agent  without  disclosing  himself  in  the 
transaction.  He  may  use  the  agent  as  a  cloak  or  mask  to  conceal  his  actions.  A 
third  person  dealing  with  such  an  agent,  and  suffering  any  injury  from  the  acts  of 
the  agent,  clearly  has  a  right  to  look  to  some  one  for  satisfaction,  and  in  this  case 
the  agent  is  personally  liable,  subject,  however,  to  the  right  of  a  third  party  to 
hold  the  principal,  should  he  afterwards  be  disclosed. 

547.  When  an  Agent  Exceeds  His  Authority. — If  an  agent  make  contracts 
which  are  not  within  the  scope  of  his  employment  he  is  personally  liable  for  such 
contracts.  A  authorized  B  to  purchase  1000  bushels  of  peaches  on  thirty  days' 
credit.  B  purchased  1000  bushels  of  apples  instead;  or  suppose  he  purchased 
1500  bushels  of  peaches.  A  can  repudiate  the  contract  or  purchase,  and  thereby 
make  B  personally  liable  to  the  third  person  for  the  purchase  money. 

548.  By  the  Form  of  Contract. — An  agent  may  make  himself  responsible  by 
the  form  of  the  contract.  If  an  agent  sign  a  contract  in  his  own  name,  as,  for 
example,  he  gives  a  promissory  note  with  his  own  name  signed  thus,  "B,  agent," 
he  technically  binds  himself.     '^^'It  is  a  general  rule  that  a  written  instrument 


no  TERMINATION  OF  AGENCY. 

must  purport  on  its  face  to  be  the  act  of  the  principal.  The  usual  and  most 
reliable  forms  are,  "A  (principal)  by  B  (agent),"  or  "A,  by  his  attorney,  B,"  or 
"A  (agent)  for  B  (principal." 

^^''It  is  of  the  utmost  importance  for  agents  to  take  care  that  they  do  not 
bind  themselves,  and  this  can  usually  be  avoided  by  doing  that  which  every 
agent  should  do  i.  e.,  transacting  the  business  of  the  agency  in  the  name  of  the 
principal. 

551.  Expressly  Agrees  to  Become  So. — The  agent  will  be  personally  liable 
whenever  he  expressly  or  impliedly  undertakes  to  become  so.  Thus,  if  an  agent 
should  buy  goods  for  his  principal,  and  by  a  wriFten  memorandum  should  ac- 
knowledge the  purchase  was  for  his  principal,  and  should  promise  to  pay  for  them, 
he  would  be  personally  liable.  So,  if  an  agent  selling  goods  should  make  out  the 
bill  for  the  goods  as  bought  of  him,  he  would  be  personally  liable  for  a  failure  to 
deliver  the  goods.  And  so  if  an  agent  should  retain  an  attorney  for  his  principal, 
and  should  promise  to  pay  him  his  fee,  he  would  be  personally  liable. 

552.  Agent's  Liability  for  Torts. — As  we  have  previously  stated,  the  principal 
is  liable  to  third  persons  for  misfeasances,  negligences  and  omissions  of  duty  of 
his  agent,  leaving  him  to  his  remedy  against  his  agent  in  all  cases  where  the  tort 
is  of  such  a  nature  as  to  entitle  him  to  compensation.  The  agent  is  also  person- 
ally liable  to  third  persons  for  his  own  misfeasances  or  positive  wrongs,  but  he  is 
not  in  general  liable  to  third  persons  for  his  own  iionfeasances  or  omissions  of  duty 
in  the  course  of  his  employment.  His  liability  in  these  latter  cases  is  solely  to 
his  principal. 

^^^In  all  cases  agents  are  liable  to  third  persons  for  their  own  misfeasances 
and  positive  wrongs.  And  it  makes  no  difference  whether  he  did  the  wrong 
intentionally,  ignorantly  or  by  authority  of  his  principal,  for  the  principal  could 
not  confer  on  him  any  authority  to  commit  a  wrong  upon  the  rights  or  property 
of  another.  In  such  cases  the  agent  is  not  liable  because  he  is  an  agent,  but 
because  he  is  a  wTongdoer. 


CHAPTER  XXXI. 

TERMINATION  OF  AGENCY. 

554.  How  Terminated. — Our  last  inquiry  under  this  subject  is,  how  the 
agent's  power  to  bind  his  principal  may  be  determined  or  brought  to  an  end.  It 
may  be  terminated  in  any  one  of  the  following  ways: 

1.  Revocation  by  the  principal. 

2.  Renunciation  by  I  he  agent. 


TERMINATION  OF  AGENCY.  Ill 

3.  By  lapse  of  time. 

4.  Completion  or  extinction  of  the  subject-matter. 

5.  Insanity  of  principal  or  agent. 

6.  Death  of  principal  or  agent. 

7.  Bankruptcy  of  principal. 

555.  Revocation. — The  time  when  and  manner  in  which  an  agency  may 
be  terminated  depends  upon  the  nature  of  the  agency  itself.  As  the  authority  is 
conferred  on  the  agent  by  the  principal,  and  is  to  be  executed  for  his  own  purpose 
and  benefits,  he  has  a  right  to  determine  or  revoke  the  authority  thus  given  to  his 
agent  at  his  own  pleasure.  The  agent  cannot  insist  upon  acting  when  the  prin- 
cipal has  withdrawn  his  confidence  and  no  longer  desires  his  aid. 

^•^''If  the  agent  have  an  interest  in  the  subject-matter,  or  has  given  a  valuable 
consideration  for  the  appointment,  the  principal  cannot  revoke.  Suppose  A 
authorized  B  to  collect  certain  debts,  and  to  reimburse  himself  out  of  the  collec- 
tion for  money  which  B  had  paid  for  A.  A  cannot  revoke  the  agency  until  B  has 
collected  a  sufficient  amount  to  satisfy  his  claim. 

557.  Renunciation. — The  agent  may  terminate  the  relation  by  renunciation. 
But  if  the  agency  were  founded  on  a  valuable  consideration,  or  has  been  partially 
executed,  the  agent,  by  renunciation,  will  be  liable  for  damages.  A  corporation 
employed  A  &  Co.,  for  a  consideration  of  $1000,  to  place  their  bonds  upon  the 
market.  A  &  Co.,  finding  the  task  more  difficult  than  they  expected,  notified  the 
corporation  that  they  would  no  longer  endeavor  to  carry  out  their  contract.  A 
&  Co.  are  liable  to  the  corporation  for  damages  for  their  renunciation. 

558.  By  Lapse  of  Time. — If  an  agent  be  appointed  to  do  a  particular  act,  or 
for  a  definite  period  of  time,  the  relation  of  principal  and  agent  terminates  on  the 
completion  of  the  act  or  expiration  of  the  time.  A,  who  was  about  to  depart  on 
a  voyage,  appointed  B  to  manage  his  affairs  until  he  returned  home.  On  the 
return  of  A  the  agency  terminates  by  its  own  limitation. 

559.  Completion  or  Extinction  of  Subject-Matter. — A  &  Co.  appoint  B  to  sell 
a  cargo  of  bananas  of  a  certain  steamer  which  is  expected  to  arrive  in  a  few  days. 
When  the  sale  is  completed  the  agency  has  its  natural  termination.  B  cannot 
bind  A  &  Co.  in  any  other  contracts.  So,  also,  if  the  steamer  were  shipwrecked, 
and  the  cargo  lost,  the  agency  would  be  at  an  end,  because  of  the  extinction  of 
the  subject-matter,  the  bananas. 

560.  Insanity. — Insanity  of  the  principal  or  agent  will  terminate  the  agency. 
In  general,  anything  which  incapacitates  either  of  the  parties  from  performing 
the  duties  incident  to  the  agency  will  terminate  it. 

561.  Death. — As  the  agent  receives  his  authority  to  act  from  his  principal, 
the  authority  must  necessarily  cease  at  his  (the  principal's)  death,  for  "a«  a  dead 
man  can  do  nothing,  so  he  can  authorize  nothing." 


112  TERMINATION  OF  AGENCY. 

'^^'If  the  agent  have  an  interest  in  the  subject-matter  of  the  agency,  the  death 
of  the  principal  will  not  terminate  the  agency.  For  example,  A  lends  money  to 
B,  in  consideration  for  which  loan  B  gives  A  power  of  attorney  to  collect  some 
debts  due  B  in  settlement  for  the  loan,  A's  agency  would  then  be  coupled  with 
such  an  interest  as  would  continue  it  until  completed,  even  though  it  be  after  B's 
death.  When  an  agent  has  only  an  interest  in  the  execution  of  the  power,  the 
agency  will  be  revoked  by  the  death  of  the  principal.  Thus,  A  gave  a  bond  to 
B  to  be  delivered  to  C  after  A's  death.  Held,  that  B  could  not  deliver  the  bond 
to  C,  since  the  death  of  A  revoked  the  agency.  ^^^The  death  of  an  agent  necessa- 
rily terminates  the  agency. 

564.  Bankruptcy  of  Principal. — Bankruptcy  is  the  state  of  a  man  whose 
business  is  stopped  and  broken  up  because  he  is  insolvent  and  utterly  incapable 
of  carrying  it  on.  ^"^When  a  principal  becomes  bankrupt  he  loses  control  of  his 
property,  and  as  he  can  no  longer  manage  and  control  it,  neither  can  one  whom 
he  has  appointed  to  represent  him;  therefore,  bankruptcy  terminates  the  agency. 

566.  When  Revocation  Takes  Effect. — A  revocation  becomes  operative  as  to 
the  agent  from  the  time  it  is  actually  made  known  to  him.  But  as  to  third  per- 
sons dealing  in  good  faith  with  one  who  was  duly  authorized  to  act  as  agent,  the 
revocation  will  not  affect  the  dealings  of  such  persons  until  notice  is  given  them. 
AltTaction  was  brought  by  A  against  a  wholesale  house  on  a  contract  made  by  a 
drummer  representing  such  house.  The  company  claimed  they  were  not 
responsible,  because  the  contract  was  made  subsequent  to  the  discharge  of  the 
drummer.  A  claimed  that  he  had  received  no  notice  whatever  of  the  said  dis- 
charge. The  company  must  fulfill  the  contract,  because  of  the  rule  as  above 
stated. 

CASES. 

(Give  reasons  for  answers.) 

13.  A  appointed  B  his  agent  to  purchase  500  tons  of  hay.  C  put  his  hay  on  the  market  in 
charge  of  B,  who  sold  it  to  A.  C  sued  A  for  damages,  because  the  latter  refused  to  perform  his 
part  of  the  contract  made  by  his  agent  and  within  the  scope  of  his  employment.  Can  C,  who 
proved  that  no  fraud  was  practiced,  succeed ?*^^ 

14.  A  instructed  li  to  sell  his  goods  for  cash  only.  It  wa.s  customary,  however,  to  sell  that 
particular  kind  of  goods  on  sixty  days'  time.  B  sold  the  goods  to  D  on  credit.  1)  becomes 
insolvent,  and  A  sues  B  to  compel  him  to  make  good  the  loss.     Should  he  succeed?^" 

15.  B  deposited  in  his  own  name  money  belonging  to  a  secret  society,  of  which  he  was 
treasurer.  The  bank  failed.  The  society  sued  B  to  require  him  to  make  good  the  loss.  B's 
defense  is  that  the  society,  contrary  to  his  wish,  required  him  to  make  the  deposit  in  that  particu- 
lar bank.     Should  the  society  succeed?"' 

16.  A  shipped  B  a  carload  of  apples  to  be  sold  on  his  own  account  and  risk.  B  mixed  a 
carload  of  his  -w-ith  thorn  in  order  that  he  might  sell  his  o\^^l  to  a  better  advantage.  A  brought 
an  action  of  replevin  to  recover  both  carloads.     (":in  lio  succpod?"^" 


TERMINATION  OF  AGENCY.  113 

17.  A  employed  a  stock  broker  to  purchase  for  him  a  certain  number  of  shares  of  B  &  O. 
R.  R.  stock.  The  stocks  were  bought.  A  becomes  insolvent.  The  broker  was  sued  for  the 
purchase  money.  His  defense  is  that  he  acted  in  the  name  of  his  principal  and  entirely  within 
the  scope  of  his  authority.     Is  the  broker  liable?^*^ 

18.  B,  who  was  representing  A,  issued  a  note  and  signed  it  thus:  "B,  agent."  B  instead  of 
A  was  sued  as  maker  of  the  note.     Is  he  liable  ?^*^ 

19.  B  was  sued  on  a  contract  made  for  the  purchase  of  1000  boxes  of  oranges.  B  repre- 
sented himself  to  be  only  an  agent,  acting  for  a  fruit  firm  of  Baltimore.  The  name  of  the  firm 
was  not  disclosed.     The  orange-grower  sold  the  fruit  on  the  credit  of  the  agent.     Is  B  liable?^''" 

20.  A  clerk  of  a  dry  goods  store  assaulted  and  beat  a  customer.  Against  whom  can  the 
customer  bring  an  action  for  redress  ?^^^ 

21.  A  gave  B  a  power  of  attorney  to  collect  a  debt  and  to  reimburse  himself  for  money 
which  B  had  previously  advanced  for  A.  Can  A  terminate  the  agency  before  B  has  collected 
the  debt?55» 

22.  C,  who  was  a  tenant  of  A's,  paid  his  monthly  rent  to  B  as  he  had  previously  done.  At 
the  time  of  payment  A  had  discharged  B,  but  C  had  not  been  notified  of  the  fact.  B  absconds 
with  the  money,  and  A  sues  C  for  the  rent.  C  sets  up  at  his  defense  that  he  was  justified  in 
making  payment  to  B,  because  he  had  not  been  informed  of  his  discharge.     Can  A  succeed?^"' 


GENERAL  REVIEW  CASES. 


(Give  reasons  for  answers.) 

1.  The  superintendent  of  a  lumber-yard,  in  violation  oi'  h's  employer's  directions,  piled 
lumber  on  a  sidewalk,  where  it  fell  and  injured  a  person.     Is  tho  employer  liable? 

2.  A  sent  a  telegram  to  B  for  "two  hand  bouquets."  Ths  operator  transmitted  the  mes- 
sage to  B  for  "two  hundred  bouquets,"  whereby  B  sustained  a  loss.  Is  the  telegraph  company 
liable? 

3.  A,  B  and  C  made  a  note  as  follows:  "We  promise  to  pay  D,  or  order,  for  the  Boston 
Glass  Manufactory,"  and  signed  their  names,  not  saying  as  agents.  To  whom  can  D  look  for 
payment. 

4.  An  agent  was  instructed  by  his  principal  to  have  his  warehouse  insured  for  $25,000. 
The  agent  neglected  to  do  so.  Subsequently,  a  fire  damaged  the  warehouse.  Is  the  agent 
liable  to  his  principal  for  the  loss  sustained? 

5.  A  party  gave  his  coachman  authority  to  sell  his  horse.  The  coachman  sold  the  horse 
and  warranted  him  to  be  sound.  The  horse  proved  to  be  unsound.  Is  the  principal  liable  to 
the  purchaser  for  the  breach  of  warranty  made  b}'  his  coachman? 

6.  B  employs  A  to  manage  his  farm,  and  instructs  him  to  hire  as  farm  laborers  only  three 
men.     A  employs  four.     Is  B  liable  for  their  wages? 

7.  An  attorney  was  employed  by  A  to  examine  the  title  of  a  piece  of  land.  The  attorney 
reported  that  the  party  offering  to  sell  it  had  a  perfect  title,  whereupon  A  purchased  the  property. 
It  turned  out  that  the  seller  had  no  title,  which  fact  was  discovered  by  an  attorney  of  ordinary 
ekiU  and  intelligence.     What  are  A's  rights? 

8.  The  bookkeeper  of  A  &  B  accepted  a  draft  drawn  on  the  firm  of  A  &  B.  The  firm  refuses 
payment,  because  they  are  not  indebted  to  the  drawer,  and  also  on  the  ground  that  the  book- 
keeper had  no  authority  to  accept  drafts.      Is  the  firm  bound  by  the  act  of  the  bookkeeper? 


114  TERM  I  \  AT  ION  OF  AGENCY. 

9.  A  real  estate  broker  was  authorized  to  sell  certain  property  for  A.  The  broker  found 
a  purchaser  wlio  was  ready  to  comply  with  all  the  terms  of  the  sale.  A,  however,  refused  to 
sell.     The  sale  not  being  consummated,  is  the  broker  entitled  to  his  commissions? 


QUESTIONS  FOR  REVIEW. 


1.  Define  agency.  2.  Who  are  principals?  3.  Who  are  agents?  4.  Who  may  be  princi- 
pals? 5.  Who  may  be  agents?  6.  How  may  agents  be  appointed?  7.  Can  a  party  be  made 
a  principal  without  his  consent?  8.  How  may  a  person  constitute  another  his  agent  in  a  trans- 
action after  the  transaction  is  performed.  9.  When  must  the  appointment  of  an  agent  be  under 
seal?  10.  What  is  the  authority  of  a  general  agent  to  bind  his  principal  on  contracts?  1 1 .  What 
is  the  difference  in  the  power  of  a  general  and  special  agent?  12.  To  what  extent  may  a  general 
agent  exceed  his  authority  and  still  bind  his  principal?  13.  Is  an  undisclosed  principal  ever 
lialjle  for  acts  of  his  agent?  14.  What  is  the  general  Hability  of  a  principal  lor  the  wrongful 
acts  of  his  agent?  15.  When  is  a  principal  liable  to  third  persons  for  willful  and  malicious  acts 
of  his  agent?  16.  Why  is  a  principal  Uable  for  the  fraud  of  his  agent  when  he  is  innocent  of 
the  fraudulent  practice?  17.  What  are  the  principal's  liabilities  to  his  agent?  18.  What  is 
meant  by  reasonable  skill  19.  What  is  meant  by  ordinary  diligence?  20.  What  are  the  prin- 
cipal's rights  against  third  persons?  21.  What  is  the  general  liability  of  an  agent?  22.  When 
will  not  an  agent  be  liable  to  his  principal  for  violating  his  trust?  23.  Why  cannot  an  agent 
act  for  two  principals  to  the  same  transactions  at  the  same  time?  24.  What  is  the  result  if  an 
agent  mixes  his  property  with  that  of  his  principal's?  25.  How  should  an  agent  deposit  his  prin- 
cipal's money?  26.  WTien  will  an  agent  be  Hable  to  third  persons  on  contracts?  27.  When 
cannot  an  agent  collect  compensation  for  his  services?  28.  How  should  an  agent  sign  papers 
for  his  principal?  29.  Is  an  agent  liable  to  third  persons  for  his  torts?  30.  What  are  the  waj's 
by  which  an  agency  is  terminated?  31.  When  does  the  dissolution  of  an  agency  take  effect  as 
to  third  parties?     32.  When  may  not  a  principal  terminate  an  agency  at  his  pleasure? 


LEGAL  MAXIMS. 


1.  No  one  is  bound  to  do  what  is  impossible. 

2.  No  injury  is  done  by  things  long  acquiesced  in. 

3.  Voluntary  Outward  acts  indicate  the  inward  intent. 

4.  An  action  is  not  given  to  one  who  is  not  injured. 

5.  The  act  of  God  does  wrong  to  no  one.     (That  is,  no  one  is  responsible  in  damages  for 
ine\atable  accidents.) 

6.  Ignorance  of  the  law  is  no  excuse. 

7.  An  act  done  by  me  against  my  will  is  not  my  act. 

8.  The  proof  lies  upon  him  who  affirms,  not  him  who  denies. 

9.  Let  the  purchaser  beware. 


PARTNERSHIP.  115 

10.  That  ifl  certain  which  can  be  made  certain. 

11.  No  one  is  punished  for  his  thoughts. 

12.  Confirmation  supplies  all  defects,  though  that  which  has  been  done  was  not  valid  at  the 
beginning. 

13.  When  two  parties  are  equally  in  fault  the  claimant  is  alwajs  at  the  disadvantage,  and 
the  party  in  possession  has  the  better  cause. 

14.  Debts  follow  the  person  of  the  debtor. 

15.  The  law  helps  persons  who  are  deceived,  not  those  deceiving. 

16.  A  man's  house  is  his  castle. 

17.  A  gift  is  not  presumed. 

18.  Equity  looks  upon  that  as  done  which  ought  to  be  done. 

19.  He  who  comes  into  court  must  come  with  clean  hands. 

20.  Every  man  is  presumed  to  intend  the  natural  and  probaljle  consequences  of  his  own 
voluntary  acts. 

21.  A  right  of  action  cannot  arise  out  of  fraud. 

22.  A  contract  cannot  arise  out  of  an  illegal  act. 

23.  The  law  does  not  regard  the  fraction  of  a  day. 

24.  No  one  shall  be  profited  by  his  own  wrongs. 

25.  Public  rights  are  to  be  preferred  to  private  rights. 

26.  A  right  cannot  arise  from  a  ^\Tong. 

27.  Many  promises  lessen  confidence. 

28.  No  one  can  be  punished  twice  for  the  same  fault. 

29.  No  man  can  contradict  his  own  deed. 

30.  Things  invalid  from  the  beginning  cannot  be  made  valid  by  subsequent  acts. 

31.  A  thing  void  in  the  beginning  does  not  become  valid  by  lapse  of  time. 

32.  Ratification  is  equal  to  command. 

33.  A  wrong  is  not  done  to  one  who  knows  and  wills  it. 

34.  If  anything  is  due  to  the  corporation  it  is  not  due  to  the  individual  members  of  it,  nor 
do  the  members  indi^^dually  owe  what  the  corporation  owes. 

35.  When  the  law  presumes  the  affirmative  the  negative  is  to  be  proven. 


CHAPTER  XXXII. 
PARTNERSHIP. 

1.  Definition. 
Partnership \  (  1.  Written — Form  of  Articles  of  Copartnership. 

2.  How  created..  I  2.  Verbal.  /  ,     r.i      •         r        ,- 

3.  Implication    /  ^^  ^'^^""^  "^  P"""^^^- 

^  ^  \  2.  True  test. 

567.  Definition. — A  partnership  may  be  said  to  exist  when  two  or  more  per- 
sons contribute  their  money,  labor  or  skill,  or  all  of  them,  to  be  employed  jointly 
in  some  lawful  commerce  or  business,  the  profits  and  losses  to  be  divided  in  cer- 
tain proportions.  A  partnership  may  exist  for  a  single  transaction  or  enterprise 
as  well  as  for  a  continuous  business,  i.  e.,  A  and  B  form  a  partnership  to  build  a 


116  PARTNERSHIP. 

bridge  or  to  engage  in  the  general  merchandise  business  for  an  unlimited  or 
unspecified  time. 

568.  How  Created. — The  partnership  relation  is  a  contractual  one.  It 
always  results  from  a  contract,  but  the  contract  need  not  be  written  or  oTal. 
Sometimes  persons  are  made  liable  as  partners  who  had  not  agreed  to  become 
such,  but  because  they  acted  as  partners  toward  third  persons  the  law  implies  a 
partnership  relation.  When  so  created  it  is  said  to  be  by  implication.  From 
this  it  will  be  seen  that  the  contract  creating  the  partnership  may  be:  1.  Writ- 
ten; 2.  Oral;  3.  Implied. 

569.  Written. — Whether  the  amount  invested  be  large  or  small,  the  enter- 
prise be  simple  or  complicated,  or  the  time  of  continuance  be  long  or  short,  it  is 
advisable,  and  probably  most  advantageous  to  all  concerned,  that  the  agreement 
be  reduced  to  writing.  By  so  doing  there  will  be  less  liability  of  misunderstand- 
ing and  disputes.  When  the  contract  is  reduced  to  writing  great  care  should  be 
exercised  to  see  that  all  the  terms  and  conditions  are  fully  and  clearly  expressed. 
The  agreement  thus  written  is  called  Articles  of  Co-partnership. 

As  between  the  parties  themselves,  a  partnership  agreement  to  buy  and  sell 
land  is  within  the  "  Statute  of  Frauds,"  and  must  be  in  writing.  No  formal  word- 
ing is  required.     On  the  following  page  we  show  a  general  form. 

^^"The  agreement  ought  to  be  witnessed,  as  shown,  though  the  law  does  not 
require  it.  The  articles  of  co-partnership  may  be  indefinitely  varied  by  special 
provisions.  Where  the  document  is  long,  or  the  terms  of  the  agreement  compli- 
cated, legal  assistance  should  be  called  in. 

571.  Verbal. — A  partnership  formed  by  spoken  words  is  just  as  binding  as 
if  those  words  were  reduced  to  writing.  But  the  difficulty  of  proving  what  the 
terms  of  the  agreement  are,  in  case  of  a  dispute,  is  an  entirely  different  question, 
belonging  to  the  law  of  evidence,  which  it  is  not  our  purpose  to  consider, 

572.  Implication. — Persons  often  engage  in  an  enterprise  without  intending 
to  form  a  partnership,  but,  nevertheless,  are  partners  and  liable  to  third  persons 
as  such,  because  they  led  third  persons  to  believe  they  were  jointl}'^  interested  in 
the  prosecution  of  the  business,  and  having  secured  credit  in  that  manner  they 
will  not  be  permitted  to  deny  that  they  were  partners.  Suppose  A  and  B  agree 
to  contribute  each  a  sum  of  money  for  the  purchase  of  a  lot  of  goods,  which  they 
intend  afterwards  to  divide.  After  the  purchase  of  the  goods,  and  before  the 
division,  they  are  joint  owners  thereof,  and  not  partners.  But  if,  instead  of 
dividing,  they  sell  them  and  divide  the  gain  or  profit,  they  then  become  partners 
because  of  a  participation  of  the  profits. 


PARTNERSmr.  H7 

573.     Form. 

ARTICLES  OF  CO-PARTNERSHIP. 

This  agreement  made  this  first  da.y  of  March,  in  the  year  nineteen  hundred  and  fi'he, 
bei<ween  H,  M.  Grayson  andEarte  Winthrop,  both  of  the  City  ofBuffalo  and  State  of  Ne-w  York. 

Whereas  the  said  H.  M.  Grayson  and Earle  Winthrop  ha^oe  agreed  to  become  partners  in 
the  general  merchandise  business  in  the  said  city  for  the  term  and  under  the  stipulations  here- 
inafter mentioned. 

1.  That  they,  the  said  H.  M.  Grayson  and  Earle  Winthrop,  shall  be  partners  in  the  gen- 
eral merchandise  business. 

2.  That  the  said  partnership  shall  begin  on  the  tenth  day  of  March,  in  the  year  nineteen 
hundred  and  five,  and  shall  continue  for  the  term  of  fi'he  years,  thence  next  ensuing; 
pro'hided,  that  if  either  one  of  said  partners  shall  be  desirous  to  terminate  or  dissolve  said 
partnership  before  the  expiration  of  said  term  of  five  years,  and  shall  give  notice  in  vjriting  of 
such  their  desire  to  the  other  at  least  ninety  days  prior  to  the  folloviing  first  day  of  January  or 
July  of  either  of  the  five  years  of  said  partnership,  then  and  in  that  case  the  said  partnership 
shall  cease  and  terminate  on  said  first  day  of  January  or  July  next  after  the  expiration  of  said 
notice,  or  at  such  future  day  or  time  as  shall  be  named  therein. 

3.  That  the  firm  name  and  style  of  said  partnership  shall  be  H.  M.  Grayson  &Co.,  and  that 
said  trade  or  business  shall  be  carried  on  under  said  firm  name  in  such  place  of  business  in  the 
City  of  Buffalo  or  else'where  as  the  said  partners  shall  from  time  to  time  mutually  agree  upon. 

4.  That  the  capital  of  said  partnership  shall  consist  of  the  sum  of  sixty-three  thousand 
dollars  {$63,000),  vohich  shall  be  brought  in  by  the  said  partners  in  the  follovjing  proportion, 
namely:  the  sum  of  thirty  thousand  dollars  {$30,000)  by  the  said  H.  M.  Grayson,  and  the  sum 
of  thirty-three  thousand  dollars  {$33,000)  by  the  said  Earle  Winthrop. 

5.  That  the  said  partners  shall  be  entitled  to  share  equally  in  the  profits  of  said  business, 
that  is  to  say:  each,  the  said H.  M.  Grayson  and  Earle  Winthrop,  shall  be  entitled  to  a  one- 
half  part  thereof,  and  that  all  losses  happening  in  the  course  of  the  said  business  shall  be  borne 
by  them  in  the  same  proportion. 

6t  That  said  Grayson  and  said  Winthrop  may  drav)  from  the  business,  for  their  ov}n  use, 
not  to  exceed  tv)o  hundred  dollars  {$200)  in  any  one  month.  A  full  inventory  and  balance 
sheet  shall  be  made  up  on  the  first  day  of  March  and  on  the  same  day  of  each  year  thereafter, 
and  a  record  thereof  kept.  The  said  Grayson  shall  ha'be  charge  of  the  financial  affairs  of  the 
firm,  and  the  said  Winthrop  shall  have  charge  of  the  buying  and  selling. 

7.  That  proper  books  of  accoun  ts  shall  be  kept,  and  that  true,  plain,  and  correct  entries  shall 
be  made  by  each  of  them  therein  of  all  things  relating  to  the  business  of  said  partnership  as  are 
usually  enteredin  such  books  of  account,  and  that  such  books  of  account,  together  voith  all  bonds , 
bills,  specialties,  insurance  policies,  notes,  letters  and  other  voritings,  Tvhich  shall  from  time 
to  time  belong  to  or  concern  the  said  partnership,  shall  be  kept  in  a  depository  vohere  each  of  the 
said  partners  shall  and  may  have  free  and  equal  access  to  the  same,  'without  the  interruption 
of  the  other. 

8.  Upon  the  dissolution  of  the  partnership  from  any  cause  except  death,  each  partner  shall 
ha'be  the  pri'bilege  of  submitting  a  bid  for  the  entire  business  and  good  v)ill,  and  the  one  mak- 
ing the  higher  offer  shall  succeed  to  the  said  business,  and  after  the  debts  are  paid  the  partner 
retiring  shall  receive  such  part  of  the  balance  of  the  amount  bid  by  the  partner  succeeding  to 
the  business,  as  his  interest  in  the  business  bears  to  the  entire  business. 

In  viitness  vohereof,  vue  hereunto  subscribe  our  names  and  affix  our  seals  this  first  day  of 
March,  1905. 

H.  M.  Grayson^    [seali 
Test:  A,  H.  Rivers.  Earle  Wi?ithrop.    [seal] 


U8  I'\  liTXKRSHfh. 

574.  Sharing  of  Profits. — Although  at  common  law  sharing  of  the  profits  was 
the  criterion  to  determine  whether  or  not  the  parties  were  partners,  it  is  no  longer 
the  true  test.  In  1S60  the  House  of  Lords  of  England  for  the  first  time  decided 
that  a  participation  of  the  profits  of  a  business  by  agreement  did  not  necessarily 
create  a  partnership,  even  as  to  tliird  persons,  although  it  affords  a  strong  pre- 
sumption thereof.  The  American  courts  have  since  followed  this  rule.  ^^"'Conse- 
quently, as  between  the  partners  themselves  and  also  as  to  third  persons  a  mere 
sharing  of  the  profits  will  not  necessarily  constitute  a  partnership.  The  party 
sharing  the  profits  must  have  a  right  to  the  profits  as  principal  in  the  joint  busi- 
ness, or,  as  it  is  sometimes  stated,  "must  be  interested  in  the  profits  as  profits, 
and  not  as  a  means  of  compensation  for  services."  ^^^\s  between  the  partners 
themselves,  their  intention,  as  gathered  from  the  entire  contract,  governs. 

Illustration. — A,  a  publisher,  agrees  to  publish  at  his  own  expense  a  book 
written  by  B,  and  to  pay  B  half  the  net  profits.  This  does  not  constitute  a  part- 
nership. B  is  not  liable  to  a  paper-maker  for  paper  supplied  to  A  for  the  general 
purpose  of  A's  publishing  business  and  used  for  publishing  B's  book. 

577.  True  Test. — An  agreement  to  share  losses  as  well  as  profits  is  necessarily 
a  partnership,  and  a  party  who  has  made  such  an  agreement  cannot  be  heard  to 
say  that  he  did  not  intend  a  partnership,  with  its  ordinary  legal  consequences. 
A,  having  been  a  clerk  in  B's  store,  entered  into  a  verbal  agreement  with  him  for 
a  share  of  the  profits  and  to  bear  the  losses  in  the  proportion  of  one-fifth  to  A  and 
four-fifths  to  B.  A  alleged  that  the  agreement  was  one  of  partnership,  and 
claimed  a  dissolution  and  an  account  of  assets.  B  denied  the  partnership,  and 
alleged  that  A  was  only  his  manager.  It  was  held  that  the  agreement  created 
the  partnership  relation,  because  there  was  an  agreement  to  share  losses  as  well 
as  gains,  and  that  A  had  a  right  to  demand  a  dissolution  and  sale  of  the  assets  of 
the  partnership.  "*An  agreement  to  receive  as  compensation  for  services  a 
portion  of  the  net  profits  of  a  business,  or  a  commission  or  percentage  thereon  in 
lieu  of  salary,  will  not  make  the  recipient  a  partner.  Thus,  if  A  made  a  contract 
with  B,  a  dry  goods  merchant,  whereby  the  former  was  to  take  charge  of  the 
latter's  store  and  to  receive  one-fourth  of  the  profits  as  a  compensation  for  his 
services,  it  would  not  constitute  A  and  B  partners. 


CLASSES  OF  PARTNERS,  ETC. 


119 


CHAPTER  XXXIII. 


CLASSES  OF  PARTNERS    ETC. 


Partnrrship 


i .  Class  of  partners 


Ostensible. 
Nominal. 
Dormant. 
Limited. 


Who  may  be  partners. 

Duties  of  partners  to  each  other 

To  manage  business. 
Compensation  for  services. 


1.  Good  faith. 

2.  Partners  must  account  for  profits. 

3.  Can  have  no  adverse  interest. 


6.  Partnership  name. 

579.  Ostensible  Partners. — Partners  may  be:  1.  Ostensible;  2.  Nominal; 
3.  Dormant;  4.  Limited.  Ostensible  or  real  partners  are  those  whose  names 
are  made  known  and  appear  to  the  world  as  partners,  and  who  in  reality  are  such. 
Thus,  both  A  and  B,  who  are  partners,  take  an  active  interest  in  conducting  their 
business,  and  are  known  throughout  the  community  to  buy  and  sell  in  the  firm 
name  of  A  &  B.     Both  A  and  B  are  ostensible  partners. 

580.  Nominal  Partners. — Nominal  partners  are  those  who  are  held  out  to 
the  world  as  partners,  but  who  in  reality  are  not  such.  They  have  no  interest 
whatsoever  in  the  business.  Thus,  if  A  told  B  that  he  was  a  partner  of  C,  and  B 
informed  C  of  the  statement,  to  which  C  made  no  reply,  C  would  be  liable  as 
partner.  D.  J.  Jerome,  a  shoe  merchant,  sold  his  entire  business  to  J.  U.  Carver. 
The  latter,  in  order  to  obtain  the  credit  and  standing  with  business  men  and  the 
community  in  general  which  his  predecessor  had  enjoyed,  obtained  permission 
from  D.  J.  Jerome  to  use  the  firm  name  of  Jerome  &  Carver.  D.  J.  Jerome,  how- 
ever, had  nothing  to  do  with  the  business.  J.  U.  Carver,  the  sole  proprietor, 
bought  a  large  stock  of  goods  in  the  firm's  name  on  credit.  He  subsequently 
failed.  D.  J.  Jerome  is  liable  for  the  debts  thus  contracted,  and  can  be  made  to 
pay  for  the  goods,  because  he  held  himself  out  to  third  persons  as  a  partner,  and 
the  merchant  who  sold  the  goods  believed  him  to  be  such,  and  extended  the  credit 
because  of  such  belief.  It  would  be  detrimental  to  commerce  to  allow  a  wealthy 
man,  by  the  loan  of  his  name,  to  give  a  party  a  fictitious  credit,  and  then  refuse 
to  satisfy  creditors  who  had  made  their  contracts  upon  the  faith  of  his  apparent 
responsibility. 


120  CLASSES  OF  IWirrXEhS,   ETC. 

581.  Dormant  Partners. — Dormant  or  silent  partners  are  those  whose  names 
do  not  appear  in  tlie  firm's  name,  and  are  not  known  by  third  parties  to  be  in  any 
way  connected  with  the  firm.  They  are,  however,  real  partners,  and  partake  of 
the  profits  and  help  to  manage  the  business.  But  in  order  to  screen  themselves 
from  liability  in  case  of  insolvency  of  the  partnership  their  connection  with  the 
partnership  is  concealed.  They  can  thus  enjoy  the  fruits  of  a  prosperous  and 
successful  business,  and,  should  the  business  prove  to  be  a  failure,  they  can  avoid 
liability  for  the  partnership  debts.  A,  B  and  C  are  partners.  The  firm  name  is 
A  &  B.  C  is  not  known  to  be  a  partner,  but,  in  fact,  is  a  real,  active  partner. 
The  firm  becomes  financially  embarrassed.  C,  whose  connection  w'ith  the  firm 
is  not  known,  can  escape  liability.  But  should  C's  connection  with  the  firm  be 
discovered  he  would  be  liable  for  the  debts  and  contracts,  for,  by  taking  a  part  of 
the  profits,  he  takes  from  the  creditors  a  part  of  the  fund  which  is  their  proper 
security  for  the  payment  of  their  debts. 

582.  Limited  Partners. — Because  of  the  common  law  liability  of  each  partner 
to  pay  the  whole  of  the  partnership  debts  the  general  partnership  is  growing  less 
popular,  and  is  being  supplanted  by  w^hat  is  knowm  as  a  limited  partnership, 
because  in  such  the  partners  are  liable  only  for  a  limited  amount.  Such  a  part- 
nership can  be  created  by  statute  only,  and  a  very  close  and  strict  compliance 
with  the  statute  is  necessary,  because  the  limited  liability  of  the  partners  is  in 
derogation  of  the  common  law  liability. 

^*^In  all  the  States  statutes  have  been  passed  providing  for  the  creation  of 
limited  partnerships.  While  the  statutes  differ  somewhat  in  detail,  the  main 
provisions  are  the  same,  which  are  as  follows: 

1.  There  must  be  one  or  more  general  partners,  who  shall  be  responsible  as 
such,  and  the  number  of  special  partners  shall  not  exceed  six. 

2.  A  certificate  is  to  be  made  and  severally  signed  which  shall  contain  names 
of  partners,  their  places  of  residence  and  time  when  it  is  to  commence  and  termi- 
nate. 

3.  The  certificate  must  be  acknowledged  and  recorded  with  the  clerk  of  the 
Circuit  or  Superior  Court. 

4.  The  terms  of  the  partnership  are  to  be  published  at  least  six  weeks  in  two 
newspapers. 

5.  Names  of  special  partners  are  not  to  appear  in  the  firm's  name,  nor  are 
they  permitted  to  transact  any  of  the  business.  But  if  the  word  "limited"  be 
used  as  a  part  of  the  firm's  name,  and  if  said  word  "limited,"  together  with  name 
of  the  special  partner,  and  his  designation,  a  "special  partner,"  be  placed  upon 
all  signs  and  be  printed  upon  all  bills,  notes,  checks,  etc.,  used  by  the  partnership, 
the  special  partner  may  take  part  in  transacting  the  business. 

6.  The  special  partner  must  contribute  cash  only,  which  cannot  be  with- 


CLASSES  OF  PARTNERS,  ETC.  121 

drawn,  and  shall  not  be  liable  for  the  partnei-ship  debts  beyond  the  amount  so 
contributed  by  him. 

^^^Parties  wishing  to  form  a  limited  partnership  should  consult  an  attorney, 
because  of  the  numerous  little  details  provided  by  the  statute,  which  must  be 
followed  to  the  very  letter.  -^^The  penalty  for  not  complying  strictly  with  the 
statutory  provisions  is  that  all  the  partners  shall  be  considered  general  partners, 
and  each  liable  for  the  full  amount  of  the  partnership  debts. 

586.  Who  May  Be  Partners. — Anyone  who  is  capable  of  making  a  valid  con- 
tract  may  be  a  partner.  An  infant,  although  he  has  no  contractual  capacity, 
may  be  a  partner,  for  his  contracts  are  not  void,  but  merely  voidable;  that  is,  he 
may,  when  he  becomes  of  age,  either  affirm  or  disaffirm  the  contracts  and  liabili- 
ties of  the  partnership.  If  the  infant  do  not  disaffirm  within  a  reasonable  time 
after  he  becomes  of  age  the  partnership  contracts  made  during  his  minority,  he 
will  be  personally  liable  the  same  as  the  other  partners  on  all  such  partnership 
contracts.  But  if,  when  he  reaches  his  majority,  he  disaffirm  the  partnership 
contracts  made  during  his  minority,  he  will  not  be  liable.  A  and  B  are  partners. 
B  is  a  minor.  They  become  heavily  indebted  to  C.  Seeing  they  cannot  meet 
their  obligations,  B,  just  before  his  twenty-first  birthday,  withdraws  from  the 
firm  and  repudiates  all  the  partnership  contracts.  C  cannnot  have  recourse  to 
B.  His  remedy  is  against  A  only,  and  should  he  fail  to  recover  from  A  he  will 
be  the  loser;  although  B,  upon  whose  credit  the  goods  were  sold,  may  be  a  multi- 
millionaire, he  is  in  no  way  liable  for  the  partnership  debts. 

587.  Duties  of  Partners  to  Each  Other. — In  the  conduct  of  partners  to  each 
other  the  most  scrupulous  fidelity  must  be  observed.  The  very  foundation  of 
a  partnership  is  based  upon  confidence  and  belief  in  the  entire  integrity  and  hon- 
esty of  each  partner.  ^^^Therefore,  if  the  partnership  sustain  any  loss  or  injury 
through  the  fraud,  gross  negligence  or  wanton  mi-eonduct  of  one  of  the  partners, 
he  will  be  responsible  to  his  co-partners  therefor. 

589j]very  partner  must  account  to  the  firm  for  any  benefit  derived  by  him 
from  a  transaction  concerning  the  partnership.  This  is  a  very  important  rule, 
and  the  following  illustration  will  make  it  clearly  understood:  A,  B,  C  and  D 
are  partners  in  the  business  of  sugar  refiners.  C  is  the  managing  partner,  and 
also  does  business  separately,  with  the  consent  of  the  others,  as  a  sugar  dealer. 
He  buys  sugar  on  his  own  account,  and  sells  it  to  the  firm  at  a  profit  at  the  fair 
market  price  of  the  day,  but  without  letting  the  other  partners  know  that  the 
sugar  is  his.  The  firm  is  entitled  and  can  compel  C  to  account  to  it  for  the  profit 
made  on  every  pound  of  sugar  thus  sold. 

^^"Another  elementar}^  rule  similar  to  the  last  is  that  no  partner  can,  without 
the  consent  of  the  rest,  be  a  member  of  another  firm  carrying  on  a  like  business 
in  the  same  field  of  competition,  and  if  the  consent  be  given  he  is  limited  by  its 


122  AUTHORITY  OF  PARTNER!^. 

terms.  Suppose  A  &  B  an-  the  proprietors  of  an  evening  paper,  for  which,  by 
agreement,  the  types  and  plant  of  a  morning  paper  owned  by  A,  B  &  C  are  used. 
C  may  prevent  or  restrain  A  ct  B  from  first  publishing  in  A  &  B's  evening  paper 
intelligence  obtained  by  the  agency  of  the  morning  paper  and  at  the  expense,  of 
A.  B  &  C. 

591.  To  Manage  the  Business. — If  there  be  no  agreement  to  the  contrary, 
the  powers  of  each  paitner  to  take  part  in  the  management  of  the  firm's  business 
are  equal,  although  their  shares  may  be  unequal.  Nothing  is  considered  as  so 
loudly  calling  for  the  interference  of  the  court  among  partners  as  the  improper 
exclusion  of  one  of  them  by  the  others  from  taking  part  in  the  management  of 
the  partnership  business. 

592.  Compensation  for  Services. — Unless  the  partnership  agreement  provide 
for  it,  partners  are  not  permitted  to  charge  the  firm  for  services,  no  matter  how 
unequal  the  services  rendered  or  time  devoted  to  the  concern  by  each  partner 
may  be.  Thus,  A,  B  and  C  are  partners.  A  devotes  his  entire  time  and  atten- 
tion to  the  business.  B  and  C  devote  the  most  of  their  time  to  outside  personal 
matters  which  in  no  way  concern  the  partnership  business.  A  cannot  charge 
the  firm  for  extra  time  devoted  to  the  business  unless  it  was  so  agreed. 

593.  Partnership  Name. — The  members  of  the  firm  may  assume  any  name 
thev  desire  for  the  transaction  of  their  business.  The  names  of  all  the  partners 
need  not  appear  in  the  firm's  name;  in  fact,  none  of  them  need  appear.  Thus, 
A  and  B  may  go  under  the  firm  name  of  Z  &  Co.,  or  A,  B  and  C  may  form  a 
partnership  and  style  themselves  A  &  Co.,  or  A  and  B  may  form  a  partnership 
and  use  for  their  name  A,  B  &  Co,  while  in  fact,  there  is  no  one  who  represents 
the  "Co."  In  New  York  State,  however,  the  word  company  cannot  be  used 
unless  there  is  some  one  connected  with  the  firm  who  is  represented  by  the  word 
"company." 

CHAPTER  XXXIV. 

AUTHORITY  OF  PARTNERS. 

1 .  Authority  of  each  to  bind  all. 

2.  Drafts  and  notes. 

3.  Borrowing  money. 

4.  Debts. 

5.  Declarations  or  admissions  of  a  partner. 

6.  Trading  and  non-trading  partnerships. 

7.  Use  of  seal. 

594.  Authority  of  Each  to  Bind  All. — As  a  general  rule,  the  firm  is  responsible 
for  whatever  is  done  by  a  partner  within  the  scope  of  the  partnership  business. 
Each  partner  becomes  an  agent  for  the  firm,  with  authority  to  do  in  the  firm's 


Authority  of  Partners 


AUTHORITY  OF  PARTNERS.  12:^ 

name  whatever  the  firm  can  do.  But  this  authority  extends  only  to  what  comes 
fairly  within  the  partnership  design.  It,  therefore,  follows  that  acts  of  a  partner 
wholly  unconnected  with  the  business  of  a  partnership  do  not  bind  the  firm.  A, 
B  and  C  are  in  the  hardware  business.  B,  without  the  consent  or  knowledge  of 
his  partners,  makes  arrangements  to  open  a  bicycle  department,  which  is  to  be 
a  part  of  the  business.  He  contracts  in  the  name  of  the  firm  for  the  purchase  of 
$6000  worth  of  wheels.  The  firm  of  A,  B  &  C  are  not  liable  on  the  contract, 
because  it  relates  to  matters  not  within  the  scope  of  the  partnership  business. 
"Within  the  scope  of  the  partnership  business"  means  any  acts  or  contracts 
which  pertain  in  any  way  to  carrying  on  the  business  for  which  the  partnership 
was  created.  It  matters  not  whether  the  acts  or  contracts  be  beneficial  to  the 
firm,  so  long  as  they  relate  to  the  business  of  the  partnership.  Thus  A,  B  and 
C  are  partners  in  the  dry  goods  business.  A  buys,  without  the  consent  or  knowl- 
edge of  B  and  C,  a  large  stock  of  goods  which  are  inferior  to  such  as  are  handled 
by  the  firm,  resulting  in  a  heavy  loss  to  them,  as  they  can  find  no  sale  for  the 
goods.  Nevertheless,  the  firm  must  pay  for  the  goods,  as  the  act  of  A  was  within 
the  range  of  the  partnership  business.  And  the  fact  that  one  partner  ordinarily 
attends  to  one  branch  of  the  business  does  not  prevent  his  binding  the  firm  when 
acting  out  of  his  own  department. 

595.  Authority  to  Draw  Drafts  and  Notes. — A  partner  may  draw,  accept  and 
endorse  drafts  and  notes  in  the  name  of  the  firm  so  long  as  the  same  is  done  for 
purposes  within  the  scope  of  the  partnership  business.  But  if  a  partner  sign  his 
own  name  to  a  note,  instead  of  the  firm's  name,  the  partner  thus  signing  will  be 
alone  liable,  although  the  proceeds  or  benefits  derived  from  the  note  were 
received  and  used  by  the  firm.  Thus,  A  borrowed  for  the  use  of  the  firm  of  A  &  B 
$5000,  and  signed  the  note  in  his  own  name.  The  money  was  used  in  the  firm's 
business.     A  alone  is  liable,  and  not  A  &  B. 

596.  Restrictions  on  Authority. — A  restriction  or  regulation  of  the  authority 
of  each  partner  to  draw  drafts,  checks,  or  issue  notes,  etc.,  by  agreement  among 
the  partners  does  not  in  any  way  affect  their  liability  to  third  persons,  because 
such  third  persons  are  not  presumed  to  know  of  any  secret  limitations.  If,  how- 
ever, a  third  person  can  be  charged  with  actual  knowledge  of  such  limitation, 
then  the  rule  ceases,  because  the  reason  ceases.  If  A,  B  and  C,  who  are  partners, 
should  agree  that  A  was  to  sign  all  the  checks  issued  by  the  firm,  and  B  was  to 
sign  the  notes  and  accept  the  drafts  drawn  on  the  firm,  and  C  should,  in  violation 
of  this  agreement,  issue  checks  and  sign  notes  and  accept  drafts,  such  checks, 
notes  and  drafts  would  be  valid  and  binding  on  the  firm,  provided  third  parties 
had  no  knowledge  of  the  agreement  of  A,  B  and  C.  If  they  did  know  of  the 
agreement  the  firm  would  not  be  liable. 

597.  Endorsements  for  Accommodation. — A  partner  has  no  implied  author- 


124  AUTHORITY  OF  PARTNERS. 

ity  to  endorse',  in  the  firm's  name,  commercial  paper  I'oi-  the  accommodation  of  or 
as  a  mere  surety  for  another,  except  by  special  authority  implied  from  the  nature 
of  the  business  or  previous  course  of  dealings.  Such  an  endorsement,  without 
authority,  is  nugatory. 

598.  Borrowing  Money. — One  partner  may  borrow  money  on  the  credit  of 
the  firm  when  it  is  necessary  for  the  transaction  of  the  partnership  business  in  the 
usual  way.  One  of  the  provisions  in  the  articles  of  co-partnership  of  A,  B  and 
C  is  that  no  money  shall  be  borrowed  on  the  firm's  paper.  C,  in  violation  of  the 
agreement,  borrowed  $10,000  to  be  used  in  the  partnership  business.  The  firm 
is  liable  on  the  note. 

599.  Debts. — One  partner  may  receive  money  or  other  property  for  debts 
due  the  firm,  and  such  payment  will  extinguish  the  debt,  even  though  the  partner 
had  no  right,  because  of  an  agreement  with  his  co-partners,  to  receive  money  and 
other  property  due  the  firm.  A  partner  may  also  compromise  with  the  debtors 
and  creditors  of  the  firm.  But  a  partner  cannot  use  partnership  funds  or  prop- 
erty to  pay  his  own  personal  debts  without  the  consent  of  his  co-partners.  If 
property  be  thus  used  it  may  be  recovered  by  the  firm.  Thus,  A,  B  and  C  are 
partners.  B  gives  to  D  the  firm's  note  in  settlement  of  a  personal  debt.  The 
firm  is  not  liable  on  the  note.     D's  only  recourse  is  to  B,  and  not  to  A,  B  &  C. 

600.  Declarations  or  Admissions  of  a  Partner. — In  general,  the  declarations 
or  admissions  of  a  partner  in  regard  to  matter  within  the  scope  of  the  partnership 
business  bind  the  firm.  For  instance,  if  a  debt  be  barred  by  statute  of  limita- 
tion, and  a  member  of  the  firm  should  make  a  part  payment  of  the  debt,  or 
promise  to  pay  it,  it  would  renew  the  debt,  and  the  firm  would  be  bound.  ®°^No- 
tice  by  or  to  one  jDartner  is  equivalent  to  notice  by  or  to  all.  Thus,  the  firm  of 
A,  B  &  C  endorsed  a  note  to  D,  At  maturity  D  notifies  C  of  the  dishonor  of  the 
note.  The  notice  to  C  is  sufficient  to  bind  the  firm  of  A,  B  &  C,  because  notice 
to  one  is  deemed  notice  to  all. 

602.  Trading  and  Non-Trading  Partnerships. — There  are  two  classes  of  part- 
nerships, viz.,  Commercial  or  Trading  Partnerships  and  Non-Trading  Partner- 
ships. In  these  two  classes  the  powers  of  each  partner  differ.  In  trading  part- 
nerships  one  partner  has  a  right  to  borrow  money  on  the  credit  of  the  firm,  issue 
negotiable  paper  in  the  firm's  name,  and  pledge  property  of  the  firm  for  the 
payment  thereof,  etc.  This  is  not  true  of  non-trading  partnerships,  and  if  a 
partner  do  any  of  the  above-mentioned  things  in  this  class  of  partnership  the 
firm  cannot  be  held  liable  unless  such  act  is  in  the  usual  course  of  the  business. 

603.  Use  of  Seal. — A  seal  is  a  common  law  instrument,  and  was  not  known 
to  the  law  merchant;  therefore,  one  partner  cannot  bind  the  other  by  a  contract 
under  seal  without  express  authority  from  that  other  partner.  A  partner  who 
makes  such  a  contract  binds  onlv  himself. 


LIABILITY  OF  PARTNERS  TO  THIRD  PARTIES. 


125 


CHAPTER  XXXV. 


LIABILITY  OF  PARTNERS  TO  THIRD  PARTIES. 


Liability  to  Third  Parties 


1.  General  rule. 

2.  Regulating  and  restricting  duties  and  liabilities 

of  partners. 

3.  Liability  of  incoming  and  retiring  partners. 

4.  Fraud. 

5.  Two-fold  responsibility. 


604.  General  Rule. — The  general  rule  which  makes  a  principal  liable  for  the 
acts  of  his  agent  applies  with  equal  force  to  the  liability  of  a  partnership  for  the 
acts  of  a  partner.  In  agency  the  rule  is,  so  long  as  an  agent  keeps  within  the 
scope  of  his  authority  and  the  powers  exercised  by  agents  of  his  class  he  binds  his 
principal,  and  not  himself.  In  partnership,  so  long  as  a  partner  keeps  within  the 
scope  of  the  partnership  business  he  binds  the  firm,  and  not  himself.  The 
distinction  is,  in  agency  it  is  within  the  scope  of  authority;  in  partnership  it  is 
within  the  scope  of  the  partnership  business. 

605.  Regulating  and  Restricting  Duties  and  Liabilities  of  Partners. — Partners 
may,  by  the  contract  creating  the  partnership,  make  any  provision  they  choose 
as  to  the  duties  to  be  performed  by  each  partner,  as  to  who  shall  bear  the  losses, 
and  how  the  debts  of  the  firm  are  to  be  paid.  The  partnership  agreement  may 
provide  that  in  case  of  losses  it  is  to  be  borne  by  certain  members  of  the  firm, 
thus  releasing  others  from  liability.  ®°^While  such  an  agreement  is  binding  and 
enforceable  between  the  partners  themselves,  yet  it  is  of  no  effect  whatsoever 
as  to  third  persons  who  are  or  who  may  become  creditors  of  the  firm.  Partners 
cannot,  by  agreement  between  themselves,  abridge  or  limit  their  liability  to 
third  persons.  Each  partner  is  liable  to  pay  the  whole  of  the  partnership  debts. 
°°^But  if  third  persons  know  that  the  partner's  authority  is  limited,  and  that  it 
does  not  extend  to  the  particular  contract  in  question,  the  firm  will  not  be  liable. 
The  only  way  by  which  a  partner  can  limit  his  liability  to  third  persons  is  by  an 
express  agreement  to  that  effect  with  such  third  person  or  by  forming  a  limited 
partnership. 

608.  Liability  of  Incoming  and  Retiring  Partners. — An  incoming  partner  is 
not  liable  for  the  debts  of  the  firm  incurred  before  he  became  a  member  unless  he 


126  LIABILITY  OF  PARTNERS  TO  Til  IN  I)  PARTIES. 

assumes  them  by  agreement.  But  a  retiring  partner  remains  liable  for  the  out- 
standing debts  of  the  firm.  For  illustration:  A,  B  and  C  are  partners.  Their 
liabilities  amount  to  S40,060.  C  enters  into  an  agreement  with  A  and  B  whereby 
they  agree  to  free  C  from  all  responsibility  for  the  payment  of  the  liabilities,. and 
he  withdraws  from  the  firm,  and  the  firm's  name  is  changed  to  A  &  B.  The 
creditors,  notwithstanding  this  agreement,  can  hold  C  responsible.  C's  agree- 
ment with  A  and  B  does  not  affect  in  any  way  whatsoever  the  rights  of  their 
creditors  to  look  to  all  who  were  partners  at  the  time  the  debts  were  created  for 
a  full  satisfaction  of  their  claims. 

609.  Fraud. — One  partner  will  be  bound  by  the  fraud  of  his  co-partner  in 
contracts  relating  l;o  the  affairs  of  the  partnership  made  with  innocent  third 
persons.  This  doctrine  proceeds  upon  the  ground  that  where  one  of  two  inno- 
cent  persons  must  suffer  by  the  act  of  a  third  person,  he  shall  suffer  who  has  been 
the  cause  of  the  confidence  and  credit  reposed  in  such  third  person.  Thus,  the 
firm  is  liable  whether  it  be  on  a  loan  obtained  by  a  partner  for  his  expenses  while 
engaged  in  the  partnership  business,  or  a  purchase  of  goods  such  as  the  firm 
dealt  in,  although  the  partner  after  the  purchase  appropriated  the  goods  to  his 
own  personal  use. 

610.  Selling  and  Pledging  Firm's  Goods. — A  partner  may,  in  the  absence  of 
fraud,  sell  or  pledge  the  entire  personal  assets  of  the  partnership,  but  he  cannot 
sell  to  himself.  But  it  must  be  remembered  that  he  who  seeks  to  hold  the  firm 
for  the  fraud  of  a  partner  was  not  himself  in  any  way  connected  with  the  fraud. 
If  he  were,  or  if  circumstances  were  such  as  to  induce  a  man  of  moderate  discern- 
ment to  believe  that  the  partner  with  whom  he  contracted  had  no  authority  to 
bind  the  firm,  it  will  not  be  liable.  ""If  a  partner  sell  the  goods  of  the  firm  in  his 
own  name  the  partnership  is  bound  by  the  sale  and  can  sue  the  buyer  for  the 
price.  But  this  right  does  not  prevent  the  buyer  from  setting  off  any  debt  due 
to  him  by  the  single  partner,  for  the  existence  of  that  debt  may  have  been  his 
inducement  to  deal  with  him. 

612.  Two-fold  Responsibility  for  Debts. — In  case  of  insolvency  of  the  firm 
there  is  both  a  partnership  and  an  individual  responsibility  to  the  creditors  of  the 
firm.  In  the  application  of  the  assets  of  the  firm  and  the  individual  members 
thereof  for  the  liabilities  of  the  firm  the  following  rule  is  applied:  The  partner- 
ship  assets  are  first  applied  to  partnership  creditors.  The  assets  of  the  individual 
melnbers  are  next  applied  to  the  debts  of  the  individual  creditors,  and  whatever 
remains  of  the  individual  assets  belongs  to  the  partnersliip  creditors.  For  illus- 
tration, A,  B  and  C  are  partners.  They  become  insolvent.  The  creditors  of  the 
firm  can  take  all  the  partnership  property,  but  they  cannot  take  the  property  of 
A,  B  &  C  which  they  own  in  their  individual  capacity  until  the  creditors'  claims 
of  each  member  of  the  firm  are  fully  satisfied.  If  anything  remain  the  creditors 
of  the  partnership  can  take  it. 


DISSOLUTION 


127 


CHAPTER  XXXVI. 


DISSOLUTION. 


1.  By  acts  of  partners. 


Dissolution  . 


1.  Mutual  consent. 

2.  Without  consent. 

3.  Assignment. 

4.  Refusal  to  act. 
f  1.  When  a  court  will  be  asked  to 

dissolve. 

1.  How  dissolved .  ■,  2.  By  order  of  court  .  .  •{  2.  Acts  which  amount  to  miscon- 
duct. 

3.  Inability  to  act. 

1.  Change  of  mental  condition. 

2.  Sale  under  execution. 

3.  Bankruptcy  of  partner. 

4.  Death  of  partner. 

2.  Business  may  continue  under  new  agreement. 


I  3.  By  operation  of  law. 


3.  Powers  that  cease  after  dissolution. 

4.  Powers  that  remain  after  dissolution. 

5.  Notice  of  dissolution. 


613.  How  Dissolved. — The  contract  of  a  partnership  may  be  dissolved:  1. 
By  acts  of  partners;  2.  By  order  of  court;  3.  By  operation  of  law. 

614.  By  Acts  of  Partners. — The  same  power  which  creates  a  contract  will 
dissolve  it;  therefore,  the  partnership  contract  may  be  terminated  at  any  time  by 
mutual  consent  of  the  parties,  as  it  was  by  their  consent  that  it  was  created. 
*^^One  partner  alone  may  dissolve  the  partnership,  even  without  the  consent  of 
his  co-partners.  But  if  the  contract  stipulate  a  definite  period  of  time  for  which 
the  partnership  is  to  continue,  and  a  partner  dissolve  the  partnership  by  refusing 
to  act  vnth  his  co-partners,  he  will  make  himself  liable  to  pay,  in  many  cases, 
heavy  damages  for  breach  of  the  partnership  contract.  But  where  no  time  is 
specified,  and  it  is  to  continue  at  the  will  of  the  parties,  either  party  may  dissolve 
it  at  any  time,  and  not  make  himself  liable  for  damages. 

"^The  assignment  by  a  partner  of  his  interest  either  to  a  co-partner  or  to  a 
stranger  wdll  also  dissolve  the  partnership,  because  the  purchaser  of  the  assignor's 
interest  might  be  objectionable  to  the  other  partners.     They  might  not  have  the 


128  DISSOLUTION. 

same  confidence  in  him  or  trust  in  his  integrity.  Neither  is  the  purchaser  bound 
to  become  a  partner  for  the  same  reason.  But,  by  mutual  consent,  the  purchaser 
may  become  a  partner.  If  so,  a  new  partnership  is  created,  the  old  one  being 
dissolved  by  the  assignment. 

A,  B  and  C  formed  a  partnership  for  a  term  of  five  years  for  the  purpose  of 
manufacturing  street-car  fenders.  The  business  for  the  first  two  years  was  a 
complete  failure,  and  because  of  this  C  assigned  his  interest  in  the  firm  to  D.  The 
assignment  works  a  dissolution  and  makes  C  liable  to  his  co-partners  for  breach 
of  contract.  Instead  of  assigning  his  interest  in  the  business  C  might  have  simply 
refused  to  act  longer  Avith  his  co-partners  and  withdraw  from  the  firm,  which 
would  also  act  as  a  dissolution  and  make  him  liable  to  the  other  members  of  the 
firm.  Had  the  articles  of  co-partnership  been  silent  as  to  the  length  of  time  of 
the  partnership  C  could  have  withdrawn,  and  not  be  liable  in  damages  for  breach 
of  the  partnership  agreement.  When  C  assigned  his  interest  in  the  business  to 
D  it  worked  a  dissolution,  yet  A,  B  and  D  may  enter  into  a  new  agreement  to 
continue  the  business  on  the  terms  of  the  old  partnership  agreement,  and  the 
enterprise  go  on  without  any  interruption  whatsoever. 

617.  By  Order  of  Court. — As  previously  stated,  if  no  limit  of  time  be  fixed 
it  is  called  a  partnership  at  will,  and  may  be  dissolved  at  the  individual  pleasure 
of  either  party  at  a  moment's  notice.  So  can  it  be  dissolved  when  a  limit  of  time 
is  fixed,  but  the  partner  causing  the  dissolution  will  be  liable  to  his  co-partners 
for  damages  they  sustain.  And  it  is  in  order  to  avoid  this  liability  that  a  court 
of  equity  is  asked  to  dissolve  the  partnership,  for  if  the  court  order  the  dissolution 
no  action  for  damages  can  be  brought. 

618.  When  Court  Will  Be  Asked  to  Dissolve. — The  aid  of  a  court  will  be 
invoked  when  one  partner  wishes  to  wind  up  the  affairs  of  the  business  and  the 
other  wishes  to  continue.  The  grounds  on  which  a  court  of  equity  may  be  asked 
to  dissolve  the  partnership  are  loss  in  business  or  inability  to  carry  on  without 
loss,  or  willful  fraud,  or  gross  misconduct  of  one  of  the  partners,  also  gross  care- 
lessness and  waste  in  the  management  of  the  business. 


619.  Acts  Which  Amount  to  Misconduct. — What  acts  of  misconduct  will 
warrant  a  dissolution  depend  largely  on  each  case,  but  the  following  have  been 
held  sufficient:  The  keeping  of  fraudulent  accounts;  misappropriation  of  firm's 
assets  to  the  individual  use  of  a  partner;  the  exclusion  of  a  partner  from  partici- 
pation in  the  management  of  the  business;  a  gross  violation  of  good  faith;  habitual 
intoxication,  and,  in  general,  any  misconduct  which  endangers  the  interests  of 
the  firm  or  tends  to  destroy  the  confidence  of  his  co-partners  in  him. 

620.  Inability  to  Act. — So,  also,  the  inability  of  a  partner  to  act  as  per  agree- 
ment is  a  sufficient  cause  for  dissolution.  Thus,  Smith  &  Brown  formed  a  part- 
nership.    Smith  agreed  to  furnish  $15,000  cash,  to  be  paid  into  the  business 


DISSOLUTION.  129 

inside  of  a  year.     His  inability  to  put  that  amount  of  money  into  the  business 
is  a  cause  for  dissolution. 

621.  By  Operation  of  Law. — By  a  dissolution  by  operation  of  law  is  meant 
that  the  happenino;  of  certain  things  over  which  the  partners  have  no  control  will 
of  itself  dissolve  the  partnership.  The  causes  which  will  work  a  dissolution  under 
this  head  are:  1.  Change  of  the  mental  condition  of  a  partner;  2.  Sale  under 
execution;  3.  Bankruptcy;  4.   Death  of  a  partner. 

622.  Change  of  Mental  Condition. — By  this  we  mean  if  a  partner  has  been 
adjudged  insane^  and  his  property  placed  in  charge  of  a  conservator,  this  would 
of  itself  dissolve  the  partnership.  Many  authorities,  however,  hold  that  lunacy  of 
a  partner  in  itself  will  not  cause  a  dissolution,  but  only  ground  upon  which  a  court 
may  decree  one.  If  the  articles  of  co-partnership  provide  that  the  partnership 
may  be  dissolved  upon  notice,  such  notice,  if  given  to  the  lunatic,  will  be  effectual. 

623.  Sale  Under  Execution. — If  a  judgment  be  obtained  against  a  member  of 
a  firm,  the  sheriff  may  sell  such  member's  interest  in  the  partnership  to  satisfy 
the  judgment.  The  purchaser  does  not  become  a  member  of  the  firm.  The  sale 
of  itself  operates  as  a  dissolution  of  the  partnership. 

624.  Bankruptcy  of  Partner. — In  case  of  bankruptcy  or  insolvency  of  one  of 
the  partners,  not  bankruptcy  of  the  partnership,  the  assignment  by  him  of  his 
individual  interest  works  a  dissolution.  The  assignee  does  not  become  a  partner. 
His  only  authority  is  to  close  up  the  bankrupt  partner's  affairs. 

625.  Death  of  a  Partner.— Unless  there  be  a  special  provision  to  the  contrary 
in  the  partnership  agreement,  the  death  of  a  partner  dissolves  the  partnership. 
This  is  true  because  his  executor  or  administrator  cannot  represent  him  in  the 
partnership  business. 

626.  Business  May  Continue  Under  New  Agreement. — Because  there  is  a  dis- 
solution of  the  partnership  it  does  not  necessarily  follow  that  the  business  must  be 
closed  up,  for  the  remaining  partners  may  enter  into  a  new  agreement  to  carry  on 
the  business  upon  the  old  terms.  But  if  there  be  no  such  agreement,  and  the  arti- 
cles of  co-partnership  do  not  otherwise  provide  for  a  continuation  of  the  business, 
its  affairs  must  be  wound  up.  There  are  certain  powers  of  partners  that  cease  and 
certain  other  powers  that  remain  after  dissolution,  which  we  shall  next  consider. 

627.  Powers  that  Cease  After  Dissolution. — One  direct  consequence  of  the 
dissolution  is  the  necessity  imposed  by  it  of  taking  prompt  and  effectual  steps  to 
wind  up  the  partnership  business.  Therefore,  neither  partner  can  create  new 
Jresponsibilities,  nor  execute  evidences  of  indebtedness,  without  the  knowledge  or 
consent  of  the  others.  Thus,  neither  partner  has  power  to  bind  the  others  by 
giving  a  note  in  the  name  of  the  late  firm  for  a  partnership  debt,  or  by  accepting 
a  draft  drawn  on  the  firm,  or  by  the  renewal  of  a  note.  So,  also,  after  dis«!olution, 
neither  partner  has  power  to  bind  his  co-partners  by  his  declarations  or  admis- 


IM  DISSOLUTION. 

sions  subsequently  made,  i.  e.,  a  debt  barred  by  Statute  of  Limitation  would  not 
be  revived  by  an  acknowledgment  and  promise  to  pay.  A,  B  and  C,  as  partners, 
owed  a  debt  to  D,  which  had  been  outlawed.  After  dissolution  of  the  firm  A 
promised  D  that  the  firm  would  pay  the  debt.  This  does  not  revive  the  debt; 
consequent!}^  the  firm  of  A,  B  &  C  are  not  liable  for  its  payment.  So,  also,  if, 
after  dissolution,  B  should  give  a  note  in  the  name  of  the  firm  to  a  creditor  of 
the  late  firm,  the  note  would  be  worthless,  as  the  firm  of  A,  B  &  C  would  not  be 
liable  because  of  the  above  rule. 

628.  Powers  that  Remain  After  Dissolution. — After  the  dissolution  of  a  part- 
nership each  partner  has  power  to  do  whatever  is  necessary  to  close  up  the  firm's 
business,  i.  e.,  to  collect  claims  due  the  firm  and  to  settle  and  pay  its  debts,  unless 
there  have  been  some  agreement  or  order  of  court  to  the  contrary.  A  partner 
may  also,  after  dissolution,  sell  any  part  or  all  of  the  firm's  property,  but  the 
payment  for  the  property  must  be  in  money. 

629.  Notice  of  Dissolution. — The  dissolution  of  a  partnership  as  regards  its 
own  members  and  the  public  comes  under  different  principles.  As  to  its  own 
members,  it  may  be  immediate  and  effectual,  but  in  reference  to  the  public  it  may 
not  be  immediate,  for  the  element  of  notice  comes  in  for  consideration.  As  to 
third  persons,  the  partnership  dissolution  does  not  become  effective  until  they 
have  had  notice  of  such  dissolution.  If  notice  be  not  given,  a  retiring  partner 
will  continue  to  be  liable  for  new  obligations.  If  the  dissolution  has  been  caused 
by  operation  of  law,  no  notice  is  necessary,  because  it  is  a  fact  of  which  the  public 
is  bound  to  take  notice.  When  a  dormant  partner  withdraws  notice  need  not  be 
given,  because  he  was  not  known  to  be  a  partner. 

^°A  circular  letter  announcing  the  dissolution  should  be  sent  to  all  parties 
who  have  done  business  with  the  firm,  but  a  newspaper  notice  announcing  the 
dissolution  is  sufficient  for  those  who  have  had  no  prior  dealings  with  the  firm. 


CASES. 


(Give  reasons  for  answers.) 

1.  A  received  money  from  a  firm  in  order  fo  enable  him  to  do  a  commission  business.  For 
this  he  was  to  pay  interest  and  divide  his  commissions,  less  his  office  expenses,  with  the  lenders, 
who  were  not  to  be  liable  for  his  losses.     Is  the  firm  liable  to  third  parties  as  the  partners  of  A?"* 

2.  A  advanced  B  money  to  be  used  in  the  latter's  business,  taking  notes  for  it,  with  the 
understanding  that  if  he  so  desired  he  might  become  a  partner,  and  that  in  such  an  event  his 
money  was  to  become  his  contribution.  B  carried  on  the  business,  took  more  than  half  the 
profits,  and  credited  A  with  int^^rest  only  on  his  loan,  despite  his  protest  that  he  was  a  partner, 
and  should  have  a  share  of  the  profits.     A  tlien  lirought  suit  on  the  note.s.     Can  lie  recover?""'  "* 


DISSOLUTION.  131 

3.  A,  B  and  C  entered  into  a  venture  in  Texas,  A  and  B  furnishing  the  capital,  B  and  C 
going  to  Texas  with  the  goods,  C  traveling  about  to  sell  them.  B  was  to  receive  a  monthly 
salary  for  his  services;  C  was  to  have  for  his  share  one-fifth  of  the  profits.  The  balance  of  the 
profits  were  to  be  divided  among  the  three.     Are  the  associates  partners?'*' 

4.  A  machinist  subscribed  to  a  fund  to  keep  the  harbor  free  of  ice.  Does  this  bind  his 
co-partners  ?''^ 

5.  If  the  firm  of  A  &  B  draw  on  the  firm  of  B  &  C,  B  being  a  partner  of  both  firms,  and  the 
draft  be  accepted,  is  it  necessary  on  its  dishonor  to  have  the  acceptance  protested  in  order  to  hold 
A  &  B?«»» 

6.  A  and  B  carried  on  business  as  harnessmakers.  A  bought  on  the  credit  of  the  firm  a 
number  of  bits  to  be  made  up  into  bridles,  but  instead  of  using  the  bits  for  the  partnership  busi- 
ness he  pawned  them  for  his  own  use.     Is  the  seller  entitled  to  recover  of  the  firm?*'^ 

7.  A,  B  and  C  are  grain  merchants.  They  agreed  not  to  sell  any  more  wheat  for  less  than 
.■51.25  per  bushel.  C,  contrary  to  the  agreement,  sold  all  the  wheat  they  had  for  $1.15  per  bushel. 
Is  the  firm  liable  on  the  contract?'"* 

8.  Two  persons  were  in  partnership  as  solicitors.  A  client  entrusted  one  of  them  with 
money  to  invest  in  a  mortgage,  and  he  was  told  that  it  had  been  invested,  whereas  the  partner 
who  had  received  the  money  had  misapplied  it.  For  years  the  client  was  regularly  paid  the 
interest  by  the  solicitor  who  attended  to  the  matter,  and  the  fraud  was  not  discovered  until  he 
became  bankrupt.  Is  the  other  partner,  who  knew  nothing  of  the  fraud,  liable  to  make  good 
the  money  ?*»» 

9.  A,  who  is  a  partner  of  B,  pays  a  separate  debt  of  his  own  with  money  of  the  firm,  and 
the  creditor  who  is  paid  is  aware  of  the  fact.  B,  on  behalf  of  the  firm,  makes  a  demand  for  its 
return.     Can  he  succeed?'"' 

10.  A,  B  and  C  are  partners.  It  was  agreed  that  C  should  participate  in  profits  and  loss, 
but  should  not  be  liable  as  a  partner  to  third  persons  for  debts.  The  firm  was  sued  by  a  cred- 
itor who  knew  of  the  partnership  agreement.     Is  C  liable  with  his  co-partners?""^ 

11.  A,  B  and  C  are  in  partnership  as  type  founders,  but  A  was  a  secret  or  dormant  partner. 
A  written  agreement  relative  to  the  partnership  business  was  entered  into  between  F.  A.  Sadler 
and  B  and  C.  A's  name  did  not  appear  in  the  agreement;  he  did  not  sign  it,  nor  when  the  contract 
was  made  was  he  known  to  F.  A.  Sadler  to  be  a  partner.  For  a  breach  of  the  agreement,  and 
A's  connection  with  the  firm  being  discovered,  the  three  partners  were  sued.  Is  A  liable  on  the 
agreement  ?^^' 

12.  Two  partners,  A  and  B,  carry  on  business  in  the  name  of  A.  B  accepts  a  draft  in  the 
name  of  A  for  the  purpose  of  the  partnership  business.     Are  both  partners  liable?'"' 

13.  B,  a  partner  of  the  firm  of  A,  B  and  C,  borrowed  money  and  executed  power  of  attorney 
to  confess  judgment  in  his  own  name.  The  money  which  he  obtained  was  applied  by  him  for 
the  benefit  of  the  partnership  and  was  obtained  with  the  knowledge  of  his  co-partners  in  order 
that  it  might  be  so  applied.     Is  the  finn  liable  on  the  note?'"' 

14.  C  joined  the  partnership  business  of  A  and  B.  B  subsequently  gave  a  creditor  of  the 
old  firm  a  note  in  the  name  of  the  new  firm.  Is  C  liable  on  the  note  given  in  settlement  of  fi 
debt  contracted  before  he  became  a  partner?""" 

15.  A  and  B  carried  on  business  under  the  style  of  A  &  Co.,  but  B  was  not  known  to  be 
a  partner.  They  dissolved  partnership  by  mutual  agreement,  but  did  not  give  the  public  any 
notice  of  the  dissolution.  After  the  dissolution  A  gave  Smith  a  promissory  note  in  the  name  of 
A  &  Co.,  on  which  he  sued  A  and  B.     Is  B  liable?""-  "2» 

16.  A  clerk  lent  money  to  his  employers,  who  were  partners  as  brewers,  and  took  their 
acknowledgment  for   it.     Several  changes  took  place   in  the  firm,  one  of  the  original  partners 


132  DISSOLUTION. 

retiring  and  other  persons  from  time  to  time  coming  in  and  going  out.  The  clerk  remained  in  the 
employ  of  the  farm  notwitlistanding  these  changes,  and  was  aware  of  them,  and  was  always  paid 
interest  by  the  firm  for  the  time  being.  Is  the  clerk  entitled  to  sue  and  recover  of  the  two 
original  partners'?** 

17.  A  was  agent  \^t  B  &  Co.  A  obtained  extensive  credits  for  the  firm  of  B  &  Co.  bj'  hold- 
ing himself  out  as  a  paitner  of  B  &  Co.  Will  A  be  liable  witii  B  &  Co.  for  the  goods  supplied 
to  A  for  B  &  Co.?"' 

18.  A  &  B  joined  '•:  che  purchase  of  some  wheat  with  the  understanding  of  dividing  and 
paying  for  it  equally      Are  they  liable  as  partners?"' 

19.  One  of  several  partners  was  employed  to  purchase  goods  for  the  firm.  He,  unknown 
to  his  co-partners,  supplied  them  at  the  market  price  with  goods  previously  bought  by  himself 
when  the  price  was  lower,  and  he  thus  made  a  considerable  profit.  Must  the  partner  account 
to  his  co-partners  for  the  profits  thus  made?^^'-  ^'  ^* 

20.  A,  B  and  C  are  the  partners  of  a  law  firm.  C,  without  the  knowledge  of  A  and  B,  pur- 
chased real  estate  for  the  firm  and  extended  in  payment  the  firm's  note.  Is  the  firm  lial)le  on 
the  contract?     Is  C  liable ?«'« 

21.  A,  B  and  C  are  partners,  and  C,  desiring  for  his  o'mi  use  goods  such  as  the  firm  li.indled, 
bought  a  quantity,  giving  in  payment  the  firm's  note.  He  appropriated  the  goods  to  his  own 
use  without  the  knowledge  of  A  and  B.     Is  the  firm  liable  on  the  note?*'*'  '"* 


QUESTIONS  FOR  REVIEW. 

1.  Define  partnership.  2.  What  may  be  invested?  3.  How  is  a  partnership  created? 
4.  WTiat  is  meant  by  a  partnership  by  implication?  5.  What  is  the  true  test  of  such  a  partner- 
ship? 6.  Name  the  different  kinds  of  partners.  7.  What  is  an  ostensible  partner?  8.  Define 
nominal  partners.  9.  ^^Tiat  is  the  liability  of  a  nominal  partner?  10.  What  is  meant  by  a 
dormant  partner?  11.  Are  they  liable  for  partnership  obligations?  12.  How  are  limited  part- 
nerships created?  13.  AVhat  are  the  provisions  of  the  statute  regulating  this  particular  class  of 
partnerships?  14.  What  is  the  result  if  the  statute  creating  them  be  not  strictly  complied  with? 
15.  Who  may  be  partners?  16.  How  may  a  partner  escape  or  limit  his  pereonal  liability  to 
creditors  of  the  firm?  17.  What  is  the  duty  and  liability  of  partners  to  each  other?  18.  What 
is  the  authority  of  each  partner  to  bind  hLs  co-partners?  19.  How  may  a  partner  bind  the  firm 
on  negotiable  paper?  20.  What  is  the  limitation  on  the  power  of  a  partner  to  borrow  money 
for  the  firm?  21.  To  what  extent  do  the  declarations  and  admissions  of  a  partner  bind  his 
co-partners?  22.  What  effect  do  restrictions  of  a  partner's  powers  by  the  partnership  agreement 
have  as  to  third  persons?  23.  When  will  the  firm  be  liable  for  the  fraud  of  a  partner?  24.  Is 
there  any  limitation  on  the  power  of  a  partner  to  sell  aU  or  a  part  of  the  firm's  property?  25. 
What  is  the  two-fold  liability  of  a  partner  for  firm's  debts?  26.  How  i?  a  partnership  dissolved? 
27.  If  a  partnership  be  created  for  a  definite  period  of  time,  can  it  be  dissolveu  by  any  member 
of  the  firm  before  the  expiration  of  the  time?  28.  When  will  a  court  of  equity  be  asked  to  dissolve 
a  partnership?  29.  What  are  the  causes  which  a  court  will  consider  sufficient  for  its  intervention? 
30.  What  is  meant  by  dissolving  a  partnership  by  operation  of  law?  31.  After  dissolution, 
may  the  business  continue  as  before?  32.  What  powers  of  partners  cease  after  dissolution?  33. 
What  powers  remain?  34.  \^nien  does  the  dissoltition  t.nke  effect  as  to  third  persons?  36.  How 
shmild   the  notice  of  dis.solution  be  given? 


CORPORA  TIONS. 


138 


CHAPTER  XXXVII. 


CORPORATIONS. 


Corporations 


1.  Definition. 

2.  Distinctive  characteristics 

3.  Classes  


4.  How  created. 

5.  Place  of  residence. 

.  6.  Capital  stock  and  stockholders. 


1.  Legal  entity. 

2.  Individuality. 

3.  Immortality. 

1.  Sole. 

2.  Aggregate. 

3.  Public. 

4.  Private. 

5.  Ecclesiastical 

6.  Eleemosynary. 

7.  Civil. 


631.  Definition. — A  corporation  was  described  by  Chief  Justice  Marshall,  in 
the  celebrated  Dartmouth  College  case,  as  "an  artificial  being,  invisible,  intangible, 
and  existing  only  in  contemplation  of  law."  It  is  sometimes  termed  an  artificial 
person.  A  corporation,  like  a  partnership,  cannot  exist  without  the  individual 
members  composing  it,  but  the  law  looks  upon  a  corporation  as  being  distinct 
and  separate  from  its  stockholders;  that  is,  the  contracts  and  obligations  of  a 
corporation  are  not  considered  as  the  contracts  and  obligations  of  the  stock- 
holders. When  a  lawsuit  is  brought  against  a  corporation  it  is  always  in  the 
name  of  the  corporation,  and  not  in  the  name  of  the  stockholders.  If  a  partner- 
ship is  sued  the  suit  is  not  in  the  name  of  the  partnership,  but  in  the  names  of  the 
individual  members  composing  the  partnership.  This  is  true  because  the  law 
does  not  recognize  the  members  of  a  firm  as  a  collective  body,  while  the  converse 
is  true  in  a  corporation.  In  the  actual  transactions  of  business  the  ordinary 
partnership  or  firm  is  recognized  as  a  united  or  corporate  body,  but  the  courts  of 
law  do  not  so  consider  them. 

632.  Distinctive  Characteristics. — The  general  nature  of  an  ordinary  business 
corporation  may  be  better  understood  by  comparing  such  an  association  with  an 
association  organized  for  similar  purposes,  but  not  incorporated,  i.  e.,  partnership. 


134  CUh'I'OJiATIOXii. 

The  distinctive  features  may  be  classified  under  three  heads,  namely:  1.  Legal 
Entity;   2.  Individuality;  3.  Immortality. 

^'^^ Legal  Entity. — A  corporation  can  be  called  into  existence  only  by  an  act 
of  the  legislature,  while  a  partnership  is  the  result  of  an  agreement  between 
parties.  For  instance,  if  A,  B,  C,  D  and  E  desire  to  form  a  partnership  they  can 
do  so  by  simply  agreeing  to  unite  their  capital,  skill,  time,  etc.,  in  the  prosecution 
of  some  enterprise.  But  if  they  desire  to  form  a  corporation  for  prosecuting  the 
same  enterprise,  in  addition  to  their  mutual  agreement  to  do  so,  they  will  have 
to  comply  with  the  statute  for  the  creation  of  corporations.     (See  Sec.  637.) 

^^* Individuality. — 1.  A  corporation  is  recognized  by  the  law  as  a  distinct 
person,  and  not  in  any  way  identified  with  its  members,  although  it  cannot  exist 
without  them.  2.  It  remains  the  same  though  all  its  members  change.  3.  It  can 
sue  and  be  sued  by,  and  contract  with  ils  members.  4,  It  is  not  liable  for  the 
debts  of  its  members,  nor  are  the  members  liable  for  the  debts  of  the  corporation. 
(See  Sec.   662.)      5.  It  has  an  individual  name,  by  which   it  sues  and  con- 


tracts. 6.  Its  members  are  not  authorized,  as  in  partnership,  by  virtue  of  their 
membership,  to  act  for  the  corporation.  A  corporation  known  as  the  "Toledo 
Stove  Co."  is  composed  of  ten  persons.  If  all  the  stockholders  should  die,  or  if 
they  were  to  assign  their  stock  to  other  parties,  it  would  not  in  any  way  affect 
the  corporation,  while  under  similar  circumstances  a  partnership  would  be  dis- 
solved. If  the  liabilities  of  the  above-named  company  exceed  the  value  of  the 
paid-up  capital  the  creditors  could  not  fall  back  on  the  stockholders,  while,  if  it 
were  a  partnership,  they  could. 

^^^ Immortality. — Unless  the  charter  expressly  limits  the  time  of  the  corpora- 
tion, its  existence  is  practically  indefinite.  The  corporation  is  not  dissolved,  as 
in  partnership,  or  affected  in  any  way  by  the  death  of  a  stockholder  or  member. 

636.  Different  Kinds  of  Corporations. — Corporations  are  divided  into  various 
dissimilar  classes  of  institutions,  namely:  1.  Sole;  2.  Aggregate;  3.  Public; 
4,  Private;   5.  Ecclesiastical;   6.  Eleemosynary;   7.  Civil. 

A  sole  corporation  consists  of  one  person.  The  dignitaries  of  the  Church  of 
England,  and  in  Massachusetts  a  minister  seized  of  parsonage  lands  to  himself  and 
his  successors,  in  right  of  the  parish,  are  often  cited  as  cases  of  corporations  sole. 

A  corporation  aggregate  is  composed  of  more  than  one.  Corporations  aggre- 
gate are  divided  into  two  classes:  1.  Public;  2.  Private. 

Public  corporations  are  merely  government  institutions  of  the  public  officers 
of  the  community.  States,  counties  and  municipalities  are  examples  of  public 
corporations. 

Private  corporations  are  associations  formed  by  the  voluntary  agreement  of 
their  members,  such  as  banking,  railroad,  manufacturing  and  publishing  com- 
panies. 


CORPORATIONS.  135 

Ecclesiastical  or  religious  corporations  are  formed  for  Mie  advancement  of 
religion.     Various  incorporated  churches  are  of  this  class. 

Eleemosynary  or  charitable  corporations  are  formed  for  the  administration 
of  charitable  trusts,  and  not  for  the  benefit  of  the  corporators  themselves.  Cor- 
porations formed  for  the  management  of  free  hospitals  and  asylums  foi  the  relief 
of  the  poor,  insane,  blind  or  otherwise  helpless  are  examples  of  thio  class  of 
corporations. 

Civil  corporations  are  those  associations  that  are  formed  for  the  temporal 
benefit  of  their  members,  such  as  railroad  and  manufacturing  companies,  banks, 
clubs  and  other  associations  of  a  similar  character. 

637.  Creation  of  Corporations. — A  corporation  cannot  be  formed,  like  a  part- 
nership, merely  by  a  contract  of  the  members  composing  it.  The  right  to  form  a 
corporation  is  a  franchise  or  special  privilege,  which  cannot  be  assumed  without 
authority  from  the  governing  power  of  the  United  States  or  of  a  State.  In  Eng- 
land the  right  to  form  a  corporation  may  be  granted  by  the  King  alone  or  by 
Parliament.  In  the  United  States  Congress  can  grant  a  charter  of  incorporation 
only  when  it  is  an  appropriate  means  for  carrying  out  any  of  the  authorized  pur- 
poses of  th3  Federal  government.  In  the  States  the  legislatures  have  the  sole 
authority  to  grant  the  right  to  form  a  corporation. 

•'^^The  act  of  the  legislature  creating  the  corporation  is  called  its  Charter. 
The  legislatures  of  the  different  States  have  passed  general  incorporation  laws 
under  which  corporations  may  be  formed  without  a  special  act  of  the  legislature. 
The  general  provisions  of  the  law  require  that  five  or  more  citizens  of  the  United 
States,  three  or  more  being  citizens  of  the  State,  shall  make,  sign,  seal  and 
acknowledge  before  some  officer  competent  to  take  acknowledgment  of  deeds 
a  certificate  in  writing  in  which  shall  be  stated: 

1.  Name  in  full  and  residence  of  incorporators. 

2.  Name  of  corporation. 

3.  Object  and  purpose  of  corporation, 

4.  Place  where  the  business  is  to  be  carried  on. 

5.  Amount  of  capital  stock. 

6.  Number  of  shares  and  amount  of  each. 

7.  Number  of  trustees,  directors  or  managers,  and  their  names, who  shall 
carry  on  the  management  of  the  concern  for  the  first  year. 

®^^The  certificate  is  to  be  submitted  to  the  judge  oi  ?ome  court  for  his  ap- 
proval as  to  whether  or  not  it  conforms  to  the  law  creating  it.  After  the  certifi- 
cate is  recorded  the  body  shall  be  a  corporation.  We  sutriit  the  following  as 
forms  showing  the  certificate  of  incorporation,  the  acknowieagment  before  a 
magistrate,  and  the  judge  s  certificate  showing  that  the  certificate  of  incorpora- 
tion is  in  compliance  with  the  law: 


136  CORPORATIONS. 

640.  Form. 

CERTIFICATE  OF  INCORPORATION. 

KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  we, 

/.  H.  M.  Grayson,  Earle  Winthrop,  George  R.  Hart,  E.  R,  Grayson  and  W.  P.  Richard- 
son, all  of  the  City  of  Seattle  and  of  the  State  of  Washington,  all  being  citizens  of  the  United 
States,  and  a  majority  of  •whom  are  citizens  of  the  State  of  Washington,  do  hereby  certify  that 
tue  do,  under  and  by 'hirtue  of  the  General  Laivs  of  this  State,  authorizing  the  formation  of 
corporations,  hereby  form  a  corporation  under  the  name  of  Seattle  Publishing  Company. 

2.  WE  DO  FURTHER  CERTIFY,  That  the  said  corporation  so  formed  is  a  corporation 
for  'Publishing ,  Dealing  in  and  Selling  Books,  Stationery  and  Miscellaneous  Materials  for 
office  and  business  purposes,  and  to  do  Ivhate'her  may  be  necessary  appertaining  to  the  Book, 
Stationery  and  Publishing  Business.  That  the  term  of  existence  of  said  corporation  is  limited 
to  forty  {40)  years;  and  that  the  corporation  is  formed  upon  the  articles,  conditions  and  pro- 
Tjisions  herein  e.xp-essed,  subject  in  all  particulars  to  the  limitations  relating  to  corporations, 
Tvhich  are  contained  in  the  General  Laius  of  this  State. 

3.  WE  DO  Further  certify.  That  the  operations  of  the  said  corporation  are  to  be 
carried  nn  in  the  City  of  Seattle  and  the  State  of  Washington,  and  that  the  principal  office  of 
the  said  corporation  lx>ill  be  located  in  the  City  of  Seattle  and  the  State  of  Washington. 

4.  WE  DO  FURTHER  CERTIFY,  That  the  aggregate  of  the  Capital  Stock  of  the  said 
corvoraticn  is  T')i?enty  Thousand  Dollars  {$20,000),  and  that  the  said  Capital  is  di<vided  into 
T'^o  Thousand  {2000)  Shares  of  the  par  'balue  of  Ten  Dollars  {$W)  each. 

5.  WE  DO  F  URTHER  CERTIFY,  That  the  said  corporation  ')vill  be  managed  by  a 
B'^ard of  filje  directors,  and  that  H.  M.  Grayson,  Earle  Winthrop,  Geo.  R.  Hart,  E.  R.  Gray- 
son and  W.  P.  Richardson  are  the  names  of  the  directors  'who  'will  manage  the  concerns  of  the 
said  corporation  for  the  first  year. 

In  'Witness  'whereof,  'we  ha've  hereunto  set  our  hands  and  seals  this  first  day  of  July,  in 
the  year  nineteen  hundred  and  six. 

H.  M,  Grayson^  [seal] 

Earle  Winthrop^  [seal] 

Geo.  R.  Harty  [seal] 

Test:  F airman  A  .  Sadler,  E,  R,  Grayson^  [seal] 

W,  P,  Richardson,  [seal] 

ACKNOWLEDGMENT  BEFORE  MAGISTRATE. 

STATE  OF  WASHINGTON,  CITY  OF  SEATTLE,  to'wit: 

Before  the  subscriber,  a  Justice  of  the  Peace  of  the  State  of  Washington,  in  and  for  the 
City  of  Seattle  aforesaid,  personally  appeared,  on  this  First  Day  of  July,  Nineteen  Hundred 
and  six,  H.  M.  Grayson,  Earle  Winthrop,  Geo.  R.  Hart,  E.  R.  Grayson,  W.  P.  Richardson,  all 
of  the  City  of  Seattle  of  the  State  of  Washington,  and  did  self  erally  ackno'wledged  the  foregoing 
certificate  to  be  their  act  and  deed.  JAMES  U.  DENNIS,  J.  P. 

JUDGE'S  CERTIFICATE. 

I,  Henry  D.  Harlan,  one  of  the  Judges  of  the  Supreme  Bench  of  Seattle,  do  hereby  certify 
that  the  foregoing  certificate  has  been  submitted  to  me  for  examination  ;  and  I  DO  FURTHER 
CERTIFY,  that  the  said  certificate  is  in  conformity  'with  the  pro'bisions  of  the  la'W  authoriz- 
ing the  formation  of  the  said  corporation.  HENRY  D.  HARLAN. 


CORPORA  TIONS.  137 

641.  Place  of  Residence. — A  corporation  legally  exists  only  where  the  law- 
creating  it  is  in  force.  It,  unlike  natural  persons,  cannot  change  its  domicile.  It 
has  a  stationary  habitation,  but  it  can  do  business  away  from  home  through 
agents.  A  corporation  located  in  Philadelphia  was  engaged  in  manufacturing 
wheelbarrows.  The  company  sent  a  salesman  to  New  Orleans,  where  he  sold  to 
a  contractor  a  large  quantity  of  wheels.  The  purchaser  afterwards  sought  to 
avoid  the  contract  because  the  company  was  doing  business  in  a  State  from 
which  it  had  received  no  charter.  But  the  purchaser  is  bound  by  his  contract, 
for,  while  the  corporation  itself  cannot  travel  about  from  State  to  State,  it  can 
send  its  agents  into  other  States  and  transact  business  in  the  same  way  that  an 
individual  can. 

"^^It  can  do  business  outside  of  the  State  creating  it  only  by  courtesy  of  other 
States.  But  a  State  never  extends  this  courtesy  where  the  existence  of  the  cor- 
poration or  the  exercise  of  its  powers  is  prejudicial  to  its  own  interests.  There  is 
no  absolute  right  of  recognition  in  other  States.  A  State  may  exclude  a  foreign 
corporation  entirely,  or  may  restrict  it  to  certain  localities,  and  may  exact 
security  for  performance  of  its  contracts.  To  illustrate,  a  life  insurance  company 
is  formed  in  Ohio.  The  company,  wishing  to  extend  its  operations  into  other 
States,  makes  application  to  the  Superintendent  of  Insurance  of  the  State  of  New 
York  for  a  license  to  do  business  in  that  State.  The  Superintendent  may  refuse 
to  grant  such  a  license,  thus  excluding  the  company  from  that  State.  And  the 
refusal  by  the  Superintendent  of  Insurance  of  New  York  to  grant  an  Ohio  com- 
pany license  is  sufficient  cause  for  the  Commissioner  of  Insurance  of  Ohio  to  put 
in  force  the  retaliatory  features  of  the  Ohio  law. 

643.  Capital  Stock  and  Stockholders. — The  capital  stock  of  a  corporation  rep- 
resents the  corporate  money,  property  and  other  valuable  rights  of  the  company, 
and  the  stockholders  are  the  owners  of  the  property,  their  interest  in  the  property 
being  measured  by  the  value  and  number  of  shares  each  holds.  The  capital 
stock  is  divided  into  shares  usually  of  $100  each. 


I3S 


PuWKh'S  WD  LIABILITIES  OF  CORI'Oh'ATIONS. 


CHAPTER  XXXVIII. 


POWERS  AND  LIABILITIES  OF  CORPORATIONS. 


Powers  and  Liabilities 


1.  What  a  corporation  can  do. 

2.  Implied  powers. 

3.  How  business  is  done. 

4.  Appointment  of  agents. 

5.  Directors'  personal  benefit. 
1 .  For  acts  ultra  \'ires. 

To  make  contracts.  {  2 
3 


Prohibited  by  statute  or  common  law 
In  excess  of  corporate  powers. 


7.  For  contracts  of  agent 


S.    l"'or  torts. 


General  rule. 
Exception  to  the  rule. 
Illustration  of  exception. 
Application  of  rule. 


644.  What  a  Corporation  Can  Do. — A  corporation  derives  all  its  powers  from 
the  act  of  the  legislature  creating  it.  Its  charter  is  the  measvire  of  its  power,  and 
the  enumeration  of  its  powers  implies  the  exclusion  of  all  others.  The  intention 
of  the  legislature  in  incorporating  a  company  is  to  enable  the  company  to  act  in 
a  corporate  capacity  so  far,  and  so  far  only,  as  is  necessary  in  order  to  carry  on 
the  business  for  which  the  company  was  formed.  A  company  was  granted  a 
charter  for  the  purpose  of  publishing  books,  papers,  magazines,  etc.  The  busi- 
ness grew  to  such  magnitude  that  the  company  decided  to  manufacture  the  paper 
used  in  its  own  business;  also  to  supply  other  publishers  with  paper.  The  cor- 
poration may  be  restrained  by  a  stockholder  or  by  the  State  from  engaging  in  the 
manufacture  of  paper,  because  it  is  in  excess  of  the  powers  enumerated  in  the 
Articles  of  Incorporation.  Even  though  the  paper  manufactured  be  exclusively 
for  the  company's  own  purposes  it  would  be  exercising  unauthorized  powers. 

645.  Implied  or  Incidental  Powers. — In  addition  to  the  powers  expressly 
conferred  on  the  corporation  by  its  charter,  there  are  certain  implied  powers. 
They  are  those  which  are  necessary  to  carry  into  effect  the  purposes  of  the  cor- 
poration or  the  powers  expressly  granted.  Necessary  here  means  such  powers 
as  are  reasonably  convenient  and  appropriate.  But  the  common  law  gives  to 
every  corporation  certain  inseparable  powers,  which  are: 

1.  To  have  perpetual  succession. 

2.  To  sue  or  be  sued,  grant  or  receive  by  corporate  name. 


POWERS  AND  LIABILITIES  OF  CORPORATIONS.  139 

3.  To  purchase  and  hold  land  and  chattels. 

4.  To  have  a  common  seal. 

5.  To  make  by-laws  for  the  government  of  the  corporation. 

6.  To  appoint  officers  and  agents. 

646.  How  Business  Is  Done. — The  business  of  a  corporation  is  necessarily 
carried  on  by  agents,  and  the  principles  of  agency  apply  with  the  same  force  in 
corporations  as  with  individuals.  The  president,  board  of  directors  and  all  the 
other  officers  of  a  corporate  body  are  only  agents  acting  on  behalf  of  the  stock- 
holders of  the  corporations. 

647.  Appointment  of  Agents. — A  stockholder  has  no  implied  authority  to 
represent  the  company  by  the  mere  fact  that  he  is  a  stockholder,  nor  has  he  any 
right  to  interfere  in  the  management  of  its  business  in  any  respect.  But  a  ma- 
jority of  the  stockholders  are  invested  with  general  supervisory  powers  over  the 
affairs  of  the  concern  and  can  elect  the  board  of  directors  and  appoint  agents 
who  have  the  active  management  of  the  company's  business.  The  stockholders 
cannot  interfere  with  the  duties  of  the  directors  or  agents  so  long  as  they  keep 
within  the  scope  or  limit  of  the  charter  or  delegated  powers.  While  the  active 
management  of  the  business  is  left  to  the  directors  of  the  corporation,  they  are 
are  not  allowed  to  make  any  radical  changes  in  the  business,  i.  e.,  cannot  increase 
capital  stock,  nor  accept  alteration  of  the  charter,  nor  mnd  up  its  business;  but 
in  payments  of  debts  they  can  assign  all  the  resources  of  the  company  to  a  trustee 
for  the  benefit  of  creditors. 

648.  Directors'  Personal  Benefit. — The  directors  occupy  a  position  of  trust, 
for  by  accepting  the  office  they  virtually  promise  the  stockholders  to  give  them 
the  benefit  of  all  transactions  and  to  exercise  the  utmost  good  faith  in  the  dis- 
charge of  their  duties.  They  cannot,  therefore,  use  their  official  position  for 
their  own  benefit  or  for  the  benefit  of  anyone  except  the  corporation  itself. 

The  directors  are  liable  to  the  stockholders  for  fraud,  malfeasance  and  gross 
negligence  amounting  to  breach  of  trust. 

649.  Power  to  Make  Contracts. — A  corporation  has  authority  to  act  in  the 
same  manner  as  a  co-partnership  in  carrying  on  its  legitimate  business,  and, 
therefore,  it  may  enter  int©  any  contract  which  is  reasonably  adapted  to  further 
the  enterprise  for  which  it  was  chartered.  In  former  times  it  was  held  that  a 
corporation  could  not  enter  into  a  contract  except  through  an  instrument  under 
seal.  But  at  present  the  ancient  rule  has  been  entirely  discarded,  and  corpora- 
tions can  make  contracts  without  the  use  of  a  seal  in  all  cases  in  which  it  may  be 
done  by  individuals.  No  formality  whatever  is  required.  The  corporation  may 
borrow  money  whenever  proper  for  the  company's  business,  and  this  authority 
to  borrow  carries  with  it  the  authority  to  give  written  acknowledgment  of 
'nflebtedness,  and  to  give  mortgage  on  the  corporate  property  as  security. 


140  F0WI:HS  AM)  IJAH/LITII.S  OF  CORPORATIONS. 

650.  Corporation's  Liabilities  for  Acts  Beyond  Its  Authority. — All  the  acts  of 
corporation  are  done  by  agents,  who  are: 

1.  Majority  of  stockholders. 

2.  Board  of  directors. 

3.  Customary  or  inferior  agents. 

The  contracts  of  a  corporation  may  be: 

1.  Prohibited  by  statute  or  common  law. 

2.  In  excess  of  corporate  powers 

3.  Within  corporate  jiowers,  but  not  within  the  authority  of  the  agent  who 
made  the  contract. 

651.  Prohibited  by  Statute  or  Common  Law. — If  a  contract  or  transfer  of 
property  be  made  in  direct  violation  of  a  statute  or  the  principles  of  common  law, 
it  is  either  void  or  voidable,  to  be  determined  by  the  same  rules  which  govern 
illegal  contracts  of  individuals.  Thus,  if  a  corporation  should  sell  or  lease  its 
franchise  without  the  consent  of  the  legislature  it  would  be  void. 

652.  Contracts  in  Excess  of  Corporate  Powers. — A  corporation  cannot  be 
compelled  by  legal  process  specifically  to  perform  a  contract  which  is  executory 
on  both  sides  and  which  is  unauthorized  by  its  charter,  because  such  act  would 
be  illegal.  A  banking  company  sold  to  a  milling  company  real  estate.  The 
bank  filed  a  bill  asking  the  court  for  a  decree  for  specific  performance  of  the  con- 
tract, but  the  court  refused  relief  on  the  ground  that  the  milling  company  had 
no  right  to  buy  real  estate  under  its  charter.  But  if  the  contract,  which  is  in 
excess  of  the  charter  of  the  corporation,  has  been  executed  in  whole  or  n  part; 
a  party  who  has  had  the  benefit  of  the  agreement  cannot  be  permitted  to  ques- 
tion its  validity.  A  corporation,  chartered  for  the  purpose  of  managing  a  street 
railway,  agreed  to  pay  a  State  board  of  agriculture  the  sum  of  SIOOO,  in  order 
to  induce  the  board  to  locate  the  annual  State  fair  at  a  certain  point  upon  the 
road.  The  fair  was  located  accordingly,  but  the  railway  company  refused  to  paj^ 
the  money  it  had  agreed  to  pay,  claiming  that  the  promise  was  void  for  want  of 
authority  to  make  it.  It  was  held  that  the  railway  company  was  bound  by 
its  agreement,  and  that  it  was  immaterial  whether  or  not  the  company  had 
authority  to  make  it,  inasmuch  as  the  contract  had  been  performed  by  one  of 
the  parties. 

""The  principle  in  all  these  cases  is  that  it  is  unjust  to  permit  one  who  has 
received  the  benefits  of  a  contract  to  repudiate  it  on  the  ground  that  the  corpo- 
ration from  which  he  has  obtained  the  benefit  had  no  powder  to  make  the  contract. 
A  corporation  was  sued  on  certain  promissory  notes  w'hich  it  had  issued  in  viola- 
tion of  its  charter,  such  violation  constituting  its  defense.     The  plaintiff,  how- 


POWERS  AND  LIABILITIES  OF  CORPORATIONS.  141 

ever,  was  entitled  to  recover  on  the  notes,  because  the  corporation  had  enjoyed 
the  use  of  the  property  for  which  the  notes  had  been  given. 

654.  The  Responsibility  of  a  Corporation  for  the  Acts  of  Its  Agents. — A  corpo- 
ration  is  bound,  and  bound  only,  by  the  acts  and  contracts  of  its  agents,  done  and 
made  within  the  scope  of  their  authority.  It  is  but  justice  to  the  shareholders  of 
a  corporation  to  hold  that  the  company  shall  not  be  chargeable  with  unauthorized 
acts  of  its  representatives.  A  majority  of  stockholders  cannot  bind  the  corpora- 
tion by  accepting  an  amendment  of  the  charter  or  by  effecting  a  consolidation 
with  another  corporation  because  of  the  rule,  as  stated. 

655.  Exception  to  the  Above  Rule. — It  is  an  established  rule  of  the  law  of 
agency  that  if  an  agent  of  a  corporation  be  invested  with  apparent  authority  to 
execute  a  particular  kind  of  contract,  or  be  clothed  with  power  to  do  an  act,  which 
power  depends  upon  some  fact  peculiarly  within  the  knowledge  of  the  agent,  a 
person  who  in  good  faith  enters  into  such  -with  the  agent,  relying  on  his  apparent 
powers,  may  charge  the  company  with  the  act,  although  the  agent  may  in  reality 
have  exceeded  his  authority. 

®^^It  is  likewise  established  that  a  corporation  cannot,  under  these  circum- 
stances, set  up  as  a  defense  that  the  making  of  a  contract  was  in  excess  of  its 
chartered  powers,  and,  therefore,  prohibited  by  law. 

657.  Illustrations  of  Exception. — A  negotiable  note  of  a  corporation,  which 
upon  its  face  appears  to  have  been  duly  issued  by  such  corporation,  is  valid  in 
the  hands  of  a  bona  fide  holder,  although  such  note  was,  in  fact,  issued  for  a  pur- 
pose not  authorized  by  the  charter  of  the  corporation.  A  debt  incurred  by  a 
corporation  for  an  unauthorized  purpose  is  binding  upon  the  company  if  the 
creditor  acted  in  good  faith  and  without  notice  of  unauthorized  acts.  If  a  cashier 
certify  a  check  for  a  depositor  the  bank  is  responsible  for  the  payment  of  the 
check.  So,  also,  if  the  directors  borrow  money  without  obtaining  the  prescribed 
resolution  at  a  general  meeting  of  the  company  the  said  company  is  bound. 

658.  Application  of  Rule. — The  rule  is  applicable  only  when  the  agent  acts 
within  the  scope  of  his  authority  under  ordinary  circumstances.  Third  persons 
are  bound  to  take  notice  of  limitations  on  the  authority  of  an  agent  when  pre- 
scribed by  the  charter  of  the  company,  but  are  not  chargeable  with  the  limita- 
tions of  authority  as  prescribed  in  the  by-laws.  A  corporation  may  ratify  the 
unauthorized  acts  of  its  agents  when  such  acts  are  within  the  purposes  of  the 
corporation.  No  certain  form  of  ratification  is  necessary;  in  many  cases  mere 
failure  to  repudiate  the  act  is  sufficient. 

659.  Liability  for  Torts. — Corporations  are  liable  for  every  wrong  they  com- 
mit to  the  same  extent  as  individuals  or  co-partnerships  undrv  similar  circum- 
stances.    An  action  may  be  maintained  against  a  corporation  for  its  malirious 


142 


RIGHTf^  AND  LIABILITIES  OF  STOCKHOLDERS. 


or  negligent  torts,  no  matter  how  foreign  they  may  be  to  the  object  of  its  pur- 
poses or  beyond  its  granted  powers.  It  may  be  sued  for  assault  and  battery,  for 
fraud  and  deceit,  for  false  imprisonment,  for  malicious  prosecution,  for  nuisance 
and  for  libel.  Its  offenses  may  be  such  as  will  forfeit  its  charter.  A  suit  to  have 
a  charter  forfeited  must  be  instituted  in  the  name  of  the  State  granting  the 
charter,  and  not  bv  an  individual. 


chapti:r  XXXIX. 


RIGHTS  AND  LIABILITIES  OF  STOCKHOLDERS. 


Rights  axd  Liabilities  of  Stockholders 


1 .  The  contract  of  membersliip. 

2.  Liability  on  subscription. 
.3.  Individual  liability. 

4.  Assessments  and  calls. 

5.  Subscription  obtained  by  fraud. 

6.  Transfer  of  stock. 

7.  Assignment  by  endorsement. 

8.  DiAndends. 


66o.  The  Contract  of  Membership. — The  contract  which  exists  among  the 
members  of  a  corporation,  and  which  constitutes  them  a  corporate  association, 
is  the  contract  of  membership.  Persons  become  members  of  a  corporation  by 
original  subscription  or  by  a  transfer  of  shares  of  stock.  A  contract  of  member- 
ship gives  the  status  of  stockholders,  and  differs  from  a  contract  to  become  a 
stockholder.  In  the  latter  case,  if  the  subscriber  fail  to  fulfill  his  agreement, 
the  corporation  would  be  entitled  to  recover  only  the  difference  between  the 
amount  which  the  subscriber  agreed  to  pay  and  the  value  of  the  shares  in  the 
market. 

66i.  Liability  on  Subscription  to  Corporation. — By  subscribing  for  capital 
stock  the  subscriber  thereby  promises  to  pay  for  the  stock  in  the  manner  indi- 
cated by  the  charter.  A  number  of  persons  had  mutually  agreed  to  form  a  cor- 
poration and  to  contribute  a  certain  amount  of  capital  stock  each.  An  act  of 
incorporation  having  been  subsequently  passed,  it  was  held  that  the  subscribers 
thereupon  became  shareholders,  and,  as  such,  were  liable  to  pay  in  the  capital 
stock  which  they  had  agreed  to  contribute.  But  subscriptions  are  not  ordinarily 
enforceable  again.'5t  the  subscribers  until  the  whole  amount  of  thp  oapital  stock 
is  subscribed. 


RIGHTS  AND  LIABILITIES  OF  STOCKHOLDERS.  143 

662.  Individual  Liability  of  Stockholders. — In  many  States  stockholders  are 
liable  individually  for  only  the  amount  of  the  unpaid  subscription.  If  they  have 
been  released  by  the  corporation  after  paying  for  only  a  part  of  the  stock  it  does 
not  in  any  way  affect  the  rights  of  the  creditors  to  compel  the  subscribers  to  pay 
in  the  full  amount  subscribed.  The  unpaid  subscription  of  a  corporation  consti- 
tutes a  trust  fund  to  be  held  by  the  corporation  for  the  benefit  of  creditors  and 
stockholders.  In  some  States,  however,  stockholders  are  liable  to  the  creditors 
of  the  corporation  for  twice  the  amount  of  their  stock.  As  this  liability  is  usually 
regulated  by  statute,  it  will  be  necessary  for  the  reader,  if  he  be  interested  in  the 
matter,  to  investigate  the  law  of  his  own  State  on  this  subject. 

663.  Assessments  and  Calls. — Before  subscribers  become  liable  to  contribute 
to  the  company's  capital  a  regular  call  or  assessment  must  be  made  upon  all  the 
subscribers,  and  under  no  circumstances  can  a  subscriber  be  sued  by  the  corpo- 
ration on  his  subscription  until  the  call  has  been  regularly  made.  The  time  when 
the  payments  are  to  be  made  is  frequently  fixed  by  the  charter.  When  not  thus 
fixed  the  managing  board  of  the  company  can  issue  a  call  whenever  the  money  is 
needed  for  the  authorized  purposes  of  the  corporation. 

664.  Subscription  Obtained  by  Fraud. — If  a  person  has  been  induced  by 
fraudulent  representations  to  become  a  member  of  a  corporation  he  can  with- 
draw without  any  liabilities  attaching  to  his  subscription.  Subscriptions  ob- 
tained by  fraud  between  an  individual  and  a  company  are  to  be  treated  like  con- 
tracts between  any  two  individuals.  If  the  false  representation  be  concerning 
some  public  law,  or  charter,  or  even  contents  of  the  subscription  paper,  or  by 
promises  or  statements  of  mere  matter  of  opinion,  the  contract  of  membership 
will  be  binding,  because  such  representations  do  not  constitute  fraud. 

^^^When  the  contract  is  voidable,  a  subscriber  must  use  due  diligence  in 
avoiding  it,  for  if  he  take  part  in  the  management  of  the  concern  after  knowledge 
of  the  fraud  he  will  be  presumed  to  have  waived  the  fraud.  Thus,  for  example, 
a  statement  made  by  an  agent  obtaining  subscription  for  shares  in  a  railroad  com- 
pany to  the  effect  that  the  road  would  be  built  upon  a  certain  route  or  within  a 
certain  time  would  not  render  a  subscription  made  upon  the  faith  of  it  voidable, 
though  the  representations  were  false. 

666.  Transfer  of  Stock. — The  charter  or  by-laws  of  a  corporation  usually 
prescribe  a  method  for  transferring  the  stock  of  a  corporation,  and  when  it  does 
a  transferrer  does  not  lose  nor  does  the  transferee  gain  the  status  of  a  stockholder, 
unless  the  formalities  thus  prescribed  are  complied  with.  But  when  they  are 
observed  the  transferee  is  entitled  to  the  rights  and  subject  to  the  liabilities  of 
the  transferrer.  Stock  may  be  assigned,  however,  so  as  to  pass  title  by  any 
agreement  which  is  binding  upon  the  parties,  and  the  assignment  will  be  protected 


144  RIGHTS  AND  LIABILITIES  OF  STOCKHOLDERS. 

in  a  court  of  equity.  Such  an  assignment  does  not  change  the  relation  between 
the  assignor  and  the  company,  but  the  beneficial  interest  in  the  stock,  however, 
belongs  to  the  transferee. 

667.  Assignment  by  Endorsement. — When  a  party  buys  the  stock  of  a  cor- 
poration, the  purchaser,  instead  of  receiving  the  stock  itself,  usually  receives  a 
certificate  showing  that  the  holder  is  the  owner  of  the  stock  described  therein. 
The  purchaser  may  obtain  the  stock  itself,  but  for  many  reasons  the  certificate  is 
preferable.  By  general  custom,  shares  are  assignable  by  endorsement  and 
delivery  of  the  certificate  issued  to  the  owner  as  evidence  of  his  rights.  It  is  well 
settled  that  after  a  certificate  for  shares  has  been  endorsed  by  the  holder,  with  an 
assignment  and  power  of  attorney  to  execute  a  transfer  upon  the  stock  books, 
the  certificate  thus  endorsed  may  be  transferred  from  hand  to  hand,  and  the  last 
holder  has  the  right  to  fill  out  the  blank  form  of  assignment  and  the  power  of 
attorney  and  have  the  transfer  recorded  on  the  books  of  the  corporation. 

^^*The  Supreme  Court  of  the  United  States  says:  "Stock  certificates  of  all 
kinds  have  been  constructed  in  a  way  to  invite  the  confidence  of  business  men,  so 
that  they  have  become  the  basis  of  commercial  transactions  in  all  the  large  cities 
of  the  country,  and  are  sold  in  open  market  the  same  as  other  securities.  Al- 
though neither  in  form  nor  character  negotiable  paper,  they  approximate  to  it  as 
nearly  as  practicable.  If  we  assume  that  the  certificates  in  question  are  not 
different  from  those  in  general  use  by  corporations,  and  the  assumption  is  a  safe 
one,  it  is  easy  to  see  why  investments  of  this  character  are  sought  after  and  relied 
upon.  No  better  form  could  be  devised  to  assure  the  purchaser  that  he  can  buy 
with  safety.  He  is  told,  under  the  seal  of  the  corporation,  that  the  shareholder 
is  entitled  to  so  much  stock,  which  can  be  transferred  on  the  books  of  the  corpora- 
tion in  person  or  by  attorney  when  the  certificates  are  surrendered,  but  not  other- 
wise. This  is  a  notification  to  all  persons  interested  to  know  that  whoever  in 
good  faith  buys  the  stock  and  produces  to  the  corporation  the  certificate,  regu- 
larly assigned,  with  power  to  transfer,  is  entitled  to  have  the  stock  transferred  to 
him.  And  the  notification  goes  further,  for  it  assures  the  holder  that  the  corpora- 
tion will  not  transfer  the  stock  to  anj^one  not  in  possession  of  the  certificate." 

669.  Dividends. — The  profits  of  the  company  are  called  dividends,  which  are 
divided  among  the  owners  of  the  shares  in  proportion  to  the  amount  of  stock 
which  each  owns.  None  of  the  profits,  however,  are  to  be  T\-ithdrawn  from  the 
company  by  the  stockholders  until  the  board  of  directors  has  declared  a  dividend. 
If  there  be  no  profits  there  can  be  no  dividend,  for  the  directors  are  not  permitted 
to  declare  and  pay  a  dividend  out  of  the  capital  stock. 


DISSOLUTION.  145 

CHAPTER  XL. 
DISSOLUTION. 


1.  How  dissolved 
Dissolution 


1.  By  expiration  of  charter. 

2.  By  surrender  of  charter. 

3.  By  legislative  enactment. 

4.  By  judicial  proceedings. 
2.  Winding  up  dissolved  companies. 


670.  How  Terminated. — A  corporation  can  be  dissolved  and  its  existence 
wholly  terminated  in  any  one  of  the  following  ways: 

1.  By  expiration  of  the  charter. 

2.  By  surrendering  the  charter  to  the  State. 

3.  By  legislative  enactment,  if  no  constitutional  provision  be  Adolated. 

4.  By  forfeiture  of  the  franchise  and  judgment  of  dissolution  obtained  in  a 
proper  judicial   proceeding. 

671.  By  Expiration  of  Charter. — If  a  corporation  be  chartered  to  exist  dur- 
ing a  certain  period  of  time  or  until  a  certain  day,  its  existence  will  terminate 
upon  the  expiration  of  the  time  or  the  occurrence  of  the  day  prescribed  by  the 
charter. 

672.  By  Surrender  of  Charter. — A  corporation  may  have  its  existence  termi- 
nated by  a  surrender  of  its  franchise  to  the  State  granting  it.  But  to  make  such 
a  surrender  effectual  it  must  be  accepted  by  the  State,  and  this  can  ordinarily  be 
done  only  by  an  act  of  the  legislature. 

673.  By  Legislative  Enactment. — It  is  now  the  custom  in  the  United  States 
to  provide  in  charters  of  incorporation  and  general  incorporation  laws  that  a  State 
shall  have  the  right  to  repeal,  alter  or  amend  them  at  pleasure.  The  reservation 
of  this  right  denies  any  intention  on  the  part  of  the  State  to  confer  irrevocable 
rights  upon  the  corporators.  If  this  right  be  not  reserved  the  State  cannot  revoke 
or  annul  the  charter,  because  it  would  be  contrary  to  the  constitutional  provision 
impairing  the  obligation  of  a  contract. 

674.  By  Judicial  Proceedings. — The  State  may  dissolve  a  corporation  and 
annul  its  charter  by  judicial  proceedings,  the  cause  for  annulment  of  the  charter 
being  the  doing  of  wrongful  acts  or  failure  to  perform  obligations  assumed  by  the 
corporation  in  favor  of  the  State. 

675.  Winding  Up  Dissolved  Companies. — In  some  States  it  is  provided  by 
statute  that  after  .the  dissolution  of  a  corporation  for  any  cause  the  company 


146  DISSOLUTION. 

shall  continue  to  be  a  body  corporate  during  a  term  of  years  for  the  purpose  of 
prosecuting  and  defending  suits  and  settling  up  its  affairs,  but  not  for  the  purpose 
of  carrying  on  its  regular  business.  In  other  States  receivers  or  trustees  are 
appointed,  whose  duty  it  is  to  collect  the  assets  of  the  company,  liciuidate  its 
liabilities  and  turn  the  balance  of  the  property,  which  is  usually  converted  into 
money,  over  to  the  stockholders. 


CASES. 

(Give  reasons  for  answers.) 

1.  A  company,  incorporated  for  the  purpose  of  manufacturing  firearms  and  other  implements 
of  war,  entered  into  a  contract  to  manufacture  railroad  locks.  Manufacturing  and  vending  of 
"railroad  locks"  is  not  within  the  purposes  for  which  the  company  was  incorporated  or  within 
the  powers  conferred  by  its  charter.  Neither  is  such  a  business  incidental  to  the  purposes  of 
incorporation  so  that  it  could  be  said  that  it  was  among  its  implied  powers.  But,  having  manu- 
factured and  delivered  a  large  number  of  locks  in  accordance  with  a  contract,  is  the  company 
entitled  to  recover  the  price  agreed  upon?*^^ 

2.  A  stockholder  of  a  company  engaged  in  the  manufacture  of  tinware  bought  a  large  quan- 
tity of  tin  to  be  used  in  the  company's  business.  He  had  no  authority  whatever  to  buy  for  or 
to  represent  the  company  except  that  he  was  a  heavy  stockholder.  The  tin  being  such  as  is  used 
by  the  company  in  its  business,  is  it  liable  for  the  purchase  money?'" 

3.  In  Case  No.  2,  would  your  answer  be  the  same  had  the  stockholder  purchased  a  tract  of 
land  instead  of  tin?*" 

4.  A  depositor  of  Merchants'  Bank  drew  a  check  for  $3500.  The  depositor  had  .§4000  to 
his  credit.  The  cashier,  in  violation  of  the  instructions  of  the  board  of  directors  of  the  bank, 
certified  the  check  instead  of  paying  it.     Is  the  bank  liable?*" 

5.  In  Case  No.  4,  suppose  the  depositor  drew  the  check  for  a  greater  amount  than  he  had 
in  bank,  and  it  was  certified  contrary  to  the  instructions  of  the  directors.  What  would  be  the 
bank's  lialnlity?""-  ««•  «" 

6.  A  corporation  was  formed  for  the  sole  purpose  of  manufacturing  and  equipping  street 
cars  with  fenders.  The  business  being  successful,  the  stockholders  decided  to  increase  the  plant 
and  manufacture  street  cars  as  well  as  car  fenders.  The  directors  bought  a  large  quantity  of 
lumber  and  other  material  to  be  used  in  constructing  the  cars.  What  are  the  rights  of  the  credi- 
tors in  case  the  company  refuses  to  pay  for  the  lumber  and  materials  when  they  had  knowledge 
that  the  company  was  exceeding  its  authorized  powers?'" 

7.  In  Case  No.  6,  would  your  answer  be  the  same  if  the  creditors  had  no  knowledge  that 
the  corporation  was  exceeding  the  provisions  of  its  charter?'" 

8.  A  company  known  as  the  "Crou-n  Cork  &  Seal  Co."  was  incorporated  under  the  general 
incorporation  laws  of  Indiana  by  A,  B,  C,  D  and  E.  Suppose  the  company  became  insolvent 
and  a  creditor  of  the  company  sues  A,  who  owns  a  majority  of  the  stock.  Can  the  creditor  suc- 
ceed?    If  they  were  partners,  would  your  answer  be  the  same?*^'-  '*" 

9.  In  Case  No.  8,  to  what  extent  are  A,  B,  C,  D  and  E  individually  liable?  Would  your 
answer  be  modified  if  they  were  partners?*'** 

10.  A,  who  had  paid  only  fifty  cents  on  the  dollar  of  his  stock  for  which  he  had  sub- 
scribed, sold  it  to  B,  because  he  expected  the  company  would  fail.  .\fter  assignment  and 
transfer  of  stock  on  the  books  of  the  corporation,  can  creditors  who  dealt  with  the  company 


FIRE  INSURANCE.  147 

on  the  faith  of  A's  being  a  stockholder  look  to  him  for  satisfaction  of  their  claims  created 
whUe  he  was  a  stockholder ?°'^  Will  A  be  obliged  to  pay  the  company  the  balance  of  his 
subscription  for  stock?*'' 

QUESTIONS   FOR   REVIEW. 

1.  What  is  a  corporation?  2.  How  is  a  corporation  distinguished  from  a  partnerehip?  3. 
Is  a  corporation  dissolved  by  the  death  of  a  stockholder?  4.  Define  the  different  kinds  of  corpora- 
tions. 5.  How  is  a  corporation  created?  6.  Wlaat  is  the  charter  of  a  corporation?  7.  What 
is  meant  by  general  incorporation  laws?  8.  What  must  the  certificate  of  incorporation  contain? 
9.  Where  is  the  domicile  of  a  corporation?  10.  May  a  corporation  do  business  out  of  the  State 
creating  it?  11.  What  is  capital  stock?  12.  From  what  source  does  a  corporation  deriA'e  its 
authority?  13.  What  is  the  limitation  on  the  power  of  a  corporation  to  do  acts  not  expressly 
granted  by  the  charter?  14.  Who  carries  on  the  business  of  a  corporation?  15.  How  may 
agents  be  appointed?  16.  Can  a  stockholder  act  on  behalf  of  a  corporation  by  virtue  of  his  being 
a  stockholder?  17.  What  is  the  liability  of  a  company  when  it  acts  in  excess  of  its  corporate 
powers?  IS.  What  is  the  general  rule  as  to  the  responsibility  of  a  corporation  for  acts  of  its 
agents?  19.  Give  the  exception  to  the  general  rule.  20.  How  do  persons  become  members  of 
corporations?  21.  What  is  the  extent  of  a  stockholder's  liability  for  the  debts  of  the  company? 
22.  What  preliminaries  are  necessary  before  a  subscriber  becomes  liable  to  pay  in  his  subscrip- 
tion? 23.  Can  a  subscription  l^e  avoided  on  the  ground  of  fraud?  24.  What  is  a  certifioate 
of  stock?  25.  How  are  stocks  transferred?  26.  How  may  the  existence  of  a  corporation  be 
brought  to  an  end? 


CHAPTER  XLI. 
FIRE  INSURANCE. 

1.  Definition. 

2.  Policy  of  insurance. 

3.  Insurable  interest. 

4.  Agents. 

5.  Representations  and  descriptions. 

6.  Alterations  and  repairs. 
Fire  Insurance \    7.  Assignment  of  policy. 

8.  Sale  of  property. 

9.  Loss  must  be  by  fire. 

10.  Performance  of  conditions. 

1 1 .  Insurer's  right  to  replace  loss. 

12.  Amount  to  be  recovered. 

13.  Policies  in  several  companies. 


676.  Definition. — Insurance  is  a  contract  whereby,  for  a  stipulated  consider- 
ation, called  premium,  one  party  undertakes  to  indemnify  the  other  against  loss 
by  certain  risks.     Fire  Insurance  is  an  agreement  whereby  one  person  agrees  to 


148  FIRE  INSURANCE. 

pay  another  a  certain  sum  of  money  in  case  the  latter  should  sustain  a  loss  of 
property  because  of  fire  within  a  certain  time.  The  person  who  insures  the 
property  and  agrees  to  pay  the  loss  is  called  the  Insurer,  and  the  person  who  has 
the  property  insured  and  is  to  receive  the  money  or  indemnity  in  case  of  loss  by 
fire  is  called  the  Insured.  An  insurance  company  is  usually  a  corporation  pos- 
sessing large  capital. 

677.  Policy  of  Insurance. — The  contract  that  is  entered  into  by  the  insurer 
and  the  insured  is  called  the  Policy.  The  policy  being  a  contract,  all  the  element':, 
principles  and  rules  of  construction  and  interpretation  of  a  contract  apply  with 
full  force  in  determining  the  validity  of  a  policy  of  insurance.  The  insured  agrees 
to  pay  to  the  insurer  a  certain  sum  of  money,  in  any  event,  called  Premium,  while 
the  insurer  agrees  to  pay  to  the  insured  only  in  case  the  property  described  in  the 
policy  is  destroyed  in  whole  or  in  part  by  fire.  The  policy  describes  the  property 
in  full,  the  amount  for  which  it  is  insured  and  on  which  the  premium  is  calculated 
and  the  time  to  the  minute  when  it  is  to  expire,  usually  at  12  o'clock  noon. 

678.  Insurable  Interest. — It  is  necessary  that  the  insured  should  have  some 
interest  in  the  property  protected,  and  the  general  rule  is  that  one  who  derives  a 
benefit  from  the  existence  of  property,  and  would  suffer  damages  from  its  destruc- 
tion, has  an  insurable  interest.  Mortgagors  and  mortgagees  have  insurable 
interests  in  the  property  mortgaged.  The  mortgagee's  interest  is  only  to  the 
extent  of  the  debt.  But  if  the  debt  be  paid  the  insurance  company  is  not  liable 
to  him  in  case  of  fire,  because  he  sustains  no  loss.  Similarly,  a  purchaser  in  pos- 
session under  a  contract  to  purchase  has  an  insurable  interest.  Mechanics  or 
material-men  who  have  a  lien  on  the  premises  for  services  performed  or  materials 
furnished  may  have  the  property  insured  over  which  their  lien  extends.  Con- 
signees may  have  the  goods  consigned  to  them  insured;  so,  also,  bailees  can  insure 
goods  left  in  their  care.  Future  products  may  be  insured.  From  the  illustra- 
tions given  it  will  be  noticed  that  it  is  not  necessary  that  one  person  should  own 
absolutely  the  property  insured.  Different  persons  may  have  different  and 
distinct  interests  in  the  property,  and  the  law  allows  each  to  protect  himself  to 
the  extent  of  his  interest.  A,  as  a  means  of  speculation,  has  his  neighbor's  house 
insured  for  $.5000.  The  house  is  destroyed  by  fire.  The  insurance  company  is 
not  liable  to  A,  because  he  had  no  interest  in  the  property.  It  is  simply  a  wager- 
ing contract  and  void. 

679.  Agents. — As  the  insurance  companies  are  corporations,  the  business 
must  necessar  ly  be  carried  on  entirely  by  agents.  The  agents  appointed  to  pro- 
cure insurance  are  usually  classed  as  special  agents,  with  limited  powers.  As  the 
contract,  called  Policy,  between  the  insurer  and  insured,  is  written,  ail  the  repre- 
sentations  made  by  an  insurance  agent  not  contained  therein  are  not  in^aiiy  way 
any  part  of  the^agreement,  even  though  it  be  the  representations  that  caused  the 
insured  to  take  out  the  policy;  yet  if  those  representations  be  not  incorporated  in 


FIRE  INSURANCE.  149 

the  policy  they  are  of  no  effect  whatsoever.  The  insured,  in  order  to  protect 
himself  and  thoroughly  to  understand  the  conditions  of  the  agreement,  shoukl 
carefully  read  the  policy  and  note  its  terms  and  provisions. 

680.  Representations  and  Descriptions. — A  misrepresentation  of  material 
facts  concerning  the  thing  to  be  insured  will  free  the  insurance  company  from  ita 
obligations  to  indemnify  the  insured.  The  insurer  is  entitled  to  have  a  full,  true 
and  accurate  description  of  the  property  and  all  that  pertains  to  or  in  any  way 
may  affect  the  risk.  If  the  replies  to  the  usual  interrogatories  be  false  the  com- 
pany may  avoid  the  policy.  There  is  a  distinction  between  representations  and 
descriptions  which  are  made  simply  for  the  purpose  of  identifying  the  property 
and  those  which  are  made  for  the  purpose  of  determining  the  nature  of  the  risk. 
In  the  former,  if  there  be  slight  variations,  it  will  not  affect  the  policy,  but  in  the 
latter  the  validity  of  the  policy  rests  on  the  truths  of  the  descriptions.  An  entirely 
erroneous  description  as  to  the  place  where  personal  property  is  situated,  or 
a  failure  to  mention  buildings  situated  near  the  insured  property,  in  answer  to 
interrogatories,  makes  the  policy  void.  Where  a  building  was  described  as  a 
dwelling-house,  but  was  used  partly  for  a  billiard  saloon  and  partly  for  a  restau- 
rant, the  policy  is  void.  So  it  is  where  the  description  was  that  the  building  was 
occupied  as  a  storehouse,  whereas  a  part  of  it  was  used  for  hacking  hemp  and 
spinning  it  into  rope  yarn.  But  where  goods  are  described  as  in  the  dwelling- 
house  of  the  insured,  and  it  turned  out  that  the  insured  had  only  one  room  as  a 
lodger,  and  the  goods  insured  being  in  this  room,  it  was  held  that  they  were  cor- 
rectly described  as  complying  with  a  condition  in  the  policy  that  "the  houses, 
buildings  and  other  places  where  goods  are  deposited  shall  be  truly  and  accurately 
described,"  such  a  condition  relating  to  the  construction  of  the  house,  and  not  to 
the  interest  of  the  parties  in  it. 

681.  Alterations  and  Repairs. — Alterations  and  repairs  do  not  in  themselves 
change  the  risk.  But  if  the  alterations  be  such  that  a  higher  rate  of  premium 
would  have  been  demanded  it  will  avoid  the  policy.  If  property  be  insured  as  a 
private  dwelling,  and  afterwards  the  building  be  extensively  altered  for  the  pur- 
pose of  running  a  boarding-house,  and  it  be  thus  used,  the  policy  not  prohibiting 
the  keeping  of  such  a  house,  does  not  vitiate  the  policy. 

^^^If  personal  property  be  removed  without  the  consent  of  the  insurer  from 
the  building  in  which  it  was  at  the  time  it  was  insured,  it  will  release  the  insurer. 

683.  Assignment  of  Policy. — Provisions  in  a  policy  that  it  cannot  be  assigned 
without  the  consent  of  the  insurer  are  valid.  But  after  a  loss  has  occurred  the 
insured  may  assign  the  policy,  and  the  assignment  will  be  valid,  even  though  there 
be  a  provision  in  the  policy  which  declares  that  such  an  assign Tient  shall  be  void. 

684.  Sale  of  Property. — If  the  property  insured  be  sold  it  will  work  a  for- 
feiture of  the  policy.     The  purchaser  would  have  no  right  to  be  indemnified  for 


1.50  VI HE  INSURANCE. 

uuy  losii  in  case  of  fire,  neither  would  the  seller  have  any  right  to  be  indemnified, 
even  though  the  policy  be  in  his  name,  because,  having  sold  the  property,  he 
sustains  no  loss  by  its  destruction.  If  property,  when  bought,  be  insured,  the 
purchaser  should  at  once  obtain  the  consent  of  the  insurer  and  have  the  policy 
transferred. 

685.  Loss  Must  Be  by  Fire. — The  loss  must  be  occasioned  by  fire  in  order  to 
give  the  insured  a  claim  for  damages.  Where  the  register  of  a  sugar-house  was 
kept  closed  by  mistake  and  caused  the  sugar  to  overheat  and  spoil,  it  was  held 
not  to  be  a  loss  by  fire,  but  by  mismanagement.  A  policy  against  fire  covers 
losses  by  water  used  in  extinguishing  the  fire,  or  loss  from  theft  while  the  goods  are 
being  removed  to  a  place  of  safety,  but  it  does  not  cover  loss  by  lightning  unless 
there  be  ignition. 

686.  Performance  of  Conditions. — A  party  desiring  insurance  is  usually  re- 
quired to  fill  out  a  form  of  application  for  insurance  which  contains  many  inter- 
rogatories concerning  the  location  and  description  of  the  property.  All  of  the 
representations  made  in  the  application  for  insurance  are  incorporated  into  the 
policy  by  reference  in  the  policy  that  the  said  interrogatories  and  answers  con- 


tained in  the  application  are  made  a  part  of  the  contract  of  insurance.  Every 
condition  and  provision  inserted  in  the  policy  and  in  the  application  must  be 
strictly  and  literally  observed.  When  a  provision  which  requires  that  in  the 
event  of  loss  an  account  of  the  particulars  of  it  is  to  be  rendered  b}'  the  insured  is 
inserted  in  a  policy  no  action  can  be  maintained  until  this  provision  has  been 
complied  with.  In  some  instances  its  delivery  within  a  specified  time  is  a  con- 
dition precedent  to  the  right  of  recovery. 

687.  Insurer's  Right  to  Replace  Loss. — In  order  to  deter  evil-disposed  persons 
from  willfully  setting  their  own  property  on  fire  for  the  purpose  of  obtaining  the 
insurance  money,  the  insurer  inserts  a  provision  in  the  policy  which  gives  him  the 
right  to  repair  or  rebuild,  or  to  pay  the  amount  of  the  loss.  This  gives  the  insurer 
the  right  to  elect  which  he  shall  do.  Where  the  damage  is  slight  the  insurance 
companies  usually  repair  instead  of  paying  the  money.  A's  dwelling-house,  in- 
sured for  $3000,  was  damaged  $500  by  fire.  The  insurance  company  believes  the 
property  was  set  on  fire  by  A  for  the  purpose  of  obtaining  the  insurance  money. 
The  company  may,  instead  of  paying  the  loss,  expend  the  money  in  repairing  the 
building. 

688.  Amount  to  Be  Recovered. — It  is  the  prevailing  opinion  among  many 
persons  that  no  matter  what  the  property  is  worth  the  insurer  is  obliged  to  pay 
the  amount  stipulated  in  the  policy.  This  is  erroneous.  The  amount  stated  in 
the  policy  only  represents  the  maximum  amount  for  which  the  company  is 
willing  to  become  liable,  and  not  the  amount  that  the  insurance  company  agrees 
to  pay.     If  a  party  insure  his  property  for  more  than  it  is  worth  he  can  recover 


FIRE  INSURANCE.  151 

only  its  real  value;  but  the  amount  insured  is  the  base  on  which  to  calculate  the 
premium.  So  that  in  such  a  case  the  insured  is  the  loser  to  the  extent  of  the  pre- 
mium he  has  to  pay  on  the  overvaluation  of  his  property.  A  insures  his  house, 
valued  at  $8000,  for  $5000.  A  loss  occurs  by  fire  and  water  amounting  to  $2000; 
the  loss  is  fully  covered,  and  A  is  entitled  to  $2000.  Suppose  the  building  were 
completely  destroyed,  then  the  loss  is  not  fully  insured,  and  A  could  only  recover 
the  amount  of  the  policy.  But  had  A  insured  the  property  for  $10,000,  when  it 
was  worth  only  $8000,  he  could  only  recover  his  actual  loss,  $8000,  and  not  the 
amount  stipulated  in  the  policy. 

689.  Policies  in  Several  Companies. — Insurance  companies  prefer  many  and 
small  risks  to  few  and  large  ones,  because  in  case  of  a  fire  the  loss  does  not  cause 
uneasiness  among  the  policy-holders.  Thus,  a  manufacturing  company  owns  a 
plant  valued  at  $50,000,  which  they  decide  to  have  fully  insured.  No  one  com- 
pany would  insure  it  for  its  full  value,  because  in  case  of  its  destruction  the  loss 
might  seriously  affect  the  insurance  company.  It  will  be  necessary  for  the  owners 
of  the  property,  if  they  desire  to  be  fully  protected,  to  take  out  policies  in  several 
companies;  then,  in  case  of  loss,  each  company,  provided  there  were  ten  of  them 
and  each  insured  for  $5000,  would  only  have  to  pay  $5000,  thus  dividing  the  loss 
among  the  ten  companies.  If  there  were  only  a  partial  destruction  of  the  prop- 
erty each  company  would  pay  that  proportion  of  the  loss  which  the  amount  of  the 
policy  bears  to  the  whole  amount  insured.  Suppose,  in  the  above  illustration, 
the  property  were  damaged  to  the  extent  of  $3000;  this  being  6  per  cent,  of 
$50,000,  the  total  amount  insured,  each  company  would  be  required  to  pay  6  per 
cent,  of  its  policy,  which  would  just  make  good  the  loss. 

GENERAL   REVIEW   CASES. 

(Give  reasons  for  answers.) 

1.  A  desired  insurance  on  his  property,  but  at  that  particular  time  was  unable  to  pay  the 
premium.  Therefore,  B  had  the  property  insured  in  his  own  name.  The  property  was  destroyed. 
What  are  B's  rights?'"^ 

2.  A  borrowed  of  B  $2000,  and  gave  as  security  a  mortgage  on  his  warehouse,  which  was 
valued  at  $15,000.  B  had  the  warehouse  insured  for  $10,000.  The  property  was  totally 
destroyed  by  fire.     Is  the  insurance  company  liable  to  B?     If  so,  to  what  extent?*'* 

3.  In  Case  No.  2,  what  would  be  B's  rights  if  the  debt  had  been  paid  before  the  destruction 
of  the  property?*'* 

4.  An  agent  insured  a  planing  miU,  owned  by  B,  for  $8000.  The  company,  when  insuring 
such  risks,  inserts  a  provision  in  the  policy  which  requires  that  the  insured  shall  keep  a  watchman 
on  the  property.  The  agent,  in  order  to  induce  B  to  take  out  a  policy,  promised  that  he  would 
not  require  him  to  keep  a  watchman  on  the  premises;  whereupon  B  took  the  insurance.  The 
policy,  however,  contained  the  usual  stipulation  referred  to.     The  property  burnt,  but  the  com- 


152  REAL  PROPERTY. 

pany  refused  to  pay  the  loss,  becfinso  the  insured  did  not  comply  with  the  conditions  of  th« 
policy.     What  right.s  h;u5  the  insured?"*" 

5.  A  loaned  B  $700  with  which  to  buy  furniture.  A  then  had  the  furniture  insured  for  nis 
own  benefit.     It  was  destroyed  by  fire.     Is  the  company  liable?"" 

6.  A  had  his  stock  of  dry  goods  insured.  Subsequently  he  removed  his  stock  into  another 
storeroom,  which  was  much  better  protected  in  case  of  fire  than  the  former.  Can  A  collect  the 
insurance  in  ca.sc  of  a  fire ■?*•■" 

7.  A  sold  property  to  B  wliich  was  fully  insured.  H,  knowing  that  tlie  property  was  insured, 
thought  that  he  was  fully  protected.  The  property  was  destroyed  by  fire.  Is  the  company 
liable  to  either  A  or  B?*** 

8.  B  insured  his  property,  worth  alx)ut  $5000,  for  $8000.  The  property  was  destroyed  by 
fire.     How  much  can  B  recover?**'' 

9.  A  had  his  property  insured  for  $20,000  in  tlie  following  companies:  Etna,  $.5000;  Hart- 
ford, $3000;  Home,  $6000;  Vermont,  $2000;  Mutual,  $4000.  A  loss  of  $7000  was  caused  by  fire. 
How  much  must  each  company  pay?'** 


QUESTIONS  FOR  REVIEW. 

1.  What  is  fire  insurance?  2.  Who  are  the  parties  to  the  contract?  3.  What  is  the  contract 
called?  4.  What  is  meant  by  "insurable  interest?"  5.  What  effect  will  misrepresentations 
concerning  the  risk  have  on  the  policy?  6.  If  the  place  where  the  property  is  located  be  inaccu- 
rately described,  what  effect  has  it  on  the  validity  of  the  policy?  7.  What  is  the  effect  on  the 
policy  if  the  premises  be  repaired  or  altered?  8.  May  a  policy  be  assigned  without  consent  of 
the  insurance  company.  9.  If  the  property  be  sold,  how  does  it  affect  the  policy?  10.  What 
is  the  result  in  case  of  non-fulfillment  of  conditions  of  the  policy?  11.  What  are  the  rights  of 
the  insurer  as  to  replacing  the  loss?  12.  For  how  much  is  the  insurance  company  liable  in  case 
of  loss? 


CHAPTER  XLII. 
REAL  PROPERTY. 

690.  Property  in  General. — Property  includes  whatever  can  be  exclusively 
possessed  or  enjoyed.  There  are  certain  material  objects,  such  as  the  ocean, 
light  and  air,  unconfined,  and  other  forces  of  nature,  which  cannot  be  exclusively 
enjoyed,  therefore  not  property.  Wild  animals  not  in  captivity  or  domesticated 
are  not  subject  to  the  laws  of  property. 

691.  Corporeal  and  Incorporeal  Property. — As  to  its  intrinsic  character,  prop- 
erty is  either  corporeal  or  incorporeal.  Corporeal  property  has  a  substantive 
existence,  such  as  land,  buildings,  animals,  merchandise  and  other  material 
objects  which  are  capable  of  ownership  by  man.  Incorporeal  property  does  not 
have  a  substantive  existence.  It  exists  only  in  contemplation  of  law.  It  con- 
sists of  rights  growing  out  of  the  use  or  enjoyment  of  corporeal  property,  the 


REAL  PROPERTY.  15i 

most  important  of  which  are  easements.  An  easement  is  the  right  of  enjoyment 
in  another  person's  land,  or  the  right  that  one  proprietor  has  in  the  estate  oi 
another.  Among  the  most  commonly  known  is  the  right  that  an  owner  of  soil 
has  to  have  it  supported  in  its  natural  position  by  the  owner  of  the  land  adjoining 
his;  the  right  of  way  which  one  has  over  the  land  of  another,  such  as  a  foot-path 
or  roadway;  the  right  of  one  man  to  draw  water  across  the  land  of  another;  the 
right  to  receive  light  and  air  across  the  land  of  another,  and  the  right  of  joining 
colossal  buildings  to  the  support  of  each  other. 

692.  Real  and  Personal  Property. — As  to  its  legal  character,  property  is  either 
real  or  personal.  Real  property  is  such  as  is  immovable.  It  consists  of  lands, 
buildings  and  anything  that  is  permanently  annexed  thereto.  Personal  property 
is  movable,  or  property  that  a  person  can  take  with  him.  Personal  property  is 
also  known  as  chattels.  There  is  a  distinction  between  real  property  and  real 
estate.  The  latter  represents  the  interest  that  one  has  in  real  property,  and  not 
the  property  itself.  A  person  may  have  a  personal  estate  in  real  property,  and 
that  is  always  the  case  where  the  interest  is  less  than  a  freehold  estate.  A  real 
estate  in  real  property  is  such  an  estate  as  in  contemplation  of  law  is  permanent 
and  without  end.  A  personal  or  leasehold  estate  is  such  an  estate  as  in  contem- 
plation of  law  is  not  permanent  and  without  end. 

*^^The  following  outline  represents  the  principal  estates  in  real  property: 

[  1.  Fee-simple  estates. 

'  1-  Freehold j  3.  Life  estates (  l'  ^°^«''- 

[         .  \  2.  Curtesy. 

Estates \  f  1.  Estate  for  years. 

2.  Personal  or  leasehold    2.  Estate  from  year  to  year. 


3.  Estate  at  sufferance. 

4.  Estate  at  will. 

694.  Inheritable  and  Life  Estates. — Freehold  estates  include  estates  for  life 
and  inheritable  estates.  An  estate  of  inheritance  is  one  that  may  survive  the 
original  owner  and  at  his  death  descend  to  his  heir  at  law.  An  estate  for  life  is 
one  that  terminates  with  the  life  of  the  tenant  or  the  life  of  some  other  person. 

695.  Fee  Simple  Estates. — A  fee  simple  estate  is  an  estate  granted  to  a  man 
and  his  heirs  in  general.  It  is  the  largest  possible  estate,  and  includes  all  others. 
The  owner  may  alienate  it  or  divide  it  up  into  lesser  estates.  If  it  has  not  been 
disposed  of  by  will,  at  the  owner's  death  it  goes  to  his  heirs  at  law.  An  estate  in 
fee  tail  is  an  estate  granted  to  a  man  and  the  heirs  of  his  body. 

696.  Estate  for  Life. — A  tenant  who  has  an  estate  to  continue  during  his  life, 
or  that  of  another  person,  has  full  use  of  the  land  and  all  its  profits  during  his 
ownership,  but  is  not  permitted  to  do  any  act  which  will  impair  or  decrease  the 


irA  LANDLORD  AND  TENANT. 

value  of  the  property.  He  can  take  such  wood  as  he  needs  for  his  fire  and  for 
necessary  repairs  of  buildings,  fences  and  the  like.  He  also  can  take  minerals 
and  ore  from  mines  already  open,  but  is  not  permitted  to  open  new  mines  for  that 
purpose. 

697.  Estate  in  Dower. — An  estate  in  dower  is  a  life  estate  which  a  surviving 
wife  has  in  one-third  of  all  the  real  property  that  her  husband  owned  during  his 
life.  The  husband  cannot  defeat  his  wife's  right  of  dower  by  selling  or  otherwise 
disposing  of  his  property.  She  may  release  her  right  of  dower  by  signing  the 
deed  with  her  husband  when  the  land  is  sold.  Therefore,  if  the  purchaser  wish  a 
clear  title  the  wife  must  join  her  husband  in  executing  the  deed.  Some  States 
give  the  wife  dower  only  in  land  that  her  husband  owned  at  the  time  of  his  death. 
Other  States  give  the  wife  dower  in  her  husband's  equitable  as  well  as  legal 
estates. 

698.  Estate  by  Curtesy. — An  estate  by  curtesy  is  the  life  interest  which  the 
husband  takes  in  his  wife's  real  property  which  she  owned  at  any  time  during 
coverture.  One  essential  requisite  to  the  vesting  of  this  estate  is  that  there  must 
have  been  a  child  born  alive  and  capable  of  inheriting  the  estate.  The  husband 
has  the  benefits  of  the  whole  estate,  and  not  only  a  part  of  it,  as  in  the  case  of  a 
dower.  This  estate  has  been  modified  by  nearly  all  the  States,  many  not  requir- 
ing issue  to  be  born.  It  does  not  exist  in  Ohio,  Illinois,  Texas,  Kansas,  Georgia, 
Michigan,  South  Carolina,  Indiana,  California  and  Louisiana.  In  these  States 
the  husband  takes  the  same  interest  in  his  wife's  property  as  she  does  in  his. 


CHAPTER  XLIII. 
LANDLORD  AND  TENANT. 

699.  Leasehold  Estates. — Estates  for  years,  estates  at  sufferance,  estates 
from  year  to  year  and  estates  at  will  represent  what  is  commonly  called  tenancies, 
the  most  important  of  which  is  the  tenancy  for  years.  In  these  tenancies  the 
parties  are  known  as  landlord  and  tenant,  or  lessor  and  lessee.  The  relationship 
is  created  by  the  owner  of  real  property  leasing  it  to  another. 

700.  Tenancies  for  Years. — A  tenancy  for  years  is  one  granted  for  a  certain 
period  of  time.  The  word  years  is  simply  used  as  a  unit  of  time.  A  tenancy  for 
years  may  continue  for  a  month,  week  or  even  a  day.  It  is  created  by  a  contract 
called  a  lease,  so  as  to  begin  and  end  at  certain  specified  dates.  The  following 
represents  a  lease,  with  its  usual  provisions  and  stipulations: 


LANDLORD  AND  TENANT.  156 

701.  Form.  Lease. 

LANDLORD  AND  TENANTS'   AGREEMENT. 

'CijtS      SgtC01tt0Ut»    Made   this  First  day  of  A  UgUSt^  190^^ 

?nd  Henry  0.  Harlan^  ^^^s^^^^^^^^^^.^^^.^^.^.^^y^^^^s^^s^^^^^s^^^^^^^^  Tenant. 

WITNESSETH,  That  the  said  Landlord  hereby  rents  to  the  said  Tenant  hoUSC  Ufld  lot^ 

No,  1824  Michigan  Ave,,  Chicago,  III.,  for  the  term  of  One 

Year,  beginning  on  the  Tenth  day  of  A  UgUSt,  t90^ ,  and  ending  on  the  Tenth 
day  of  A  UgUSt,  19o6 ,  at  Six  Hundrcd  .^^^^^^^.^^  dollars  a  year  payable 

monthly  in  advance. 

And  the  said  Tenant  hereby  co'venants  Tuith  the  said  Landlord  to  keep  the  premises  in  good 
order,  and  surrender  the  peaceful  and  quiet  possession  of  the  same  at  the  end  of  the  said  term, 
in  as  good  condition  as  'when  recei<ved  {the  natural  tuear  and  decay  of  the  property  and 
unavoidable  accidents  excepted),  and  further,  that  the  said  Tenant  <will  not  do,  suffer  or  permit 
anything  to  be  done,  in  or  about  the  premises  "which  •will  contravene  the  policy  of  insurance 
against  loss  by   fire;   nor  use,   nor  permit  their   use,  for  purposes  other  than  those  of  a 

uWe/ling,y\y\y\y>^3.nd  'zuill  not  at  any  time  assign  this  agreement,  or  the  property  thus 
let  or  any  portion  thereof,  <zvithout  the  consent  in  turiting  of  the  said  Landlord  or  fltS  repre- 
sent ati-ves  ;  and  further,  that  'whatever  alterations  or  repairs  the  said  Tenant  shall  be  pe"- 
mitted  to  make  shall  be  done  at  rltS  o<wn  expense. 

IT  IS  FURTHER  AGREED,  That  if  the  rent  shall  be  thirty  days  in  arrear,  the  Land- 
lord shall  have  the  right  to  distrain  for  the  same ;  and  if  the  property  shall  be  destroyed  or 
rendered  untenantable  by  fire  or  unavoidable  accident,  the  tenancy  hereby  created  shall  be 
thereby  terminated,  and  all  liability  for  rent  hereunder  shall  cease  upon  payment  proportion- 
ately to  the  day  of  fire  or  unavoidable  accident. 

AND  IT  IS  ALSO  FURTHER  AGREED,  That  this  agreement,  vjtth  all  its  provisions  and 
covenants,  shall  continue  in  force  from  term  to  term  after  the  expiration  of  the  term  abolie 
mentioned — pro'bided,  hovuever,  that  the  parties  hereto,  or  either  of  them,  can  terminate  the 

same  at  the  end  of  the  term  above  mentioned,  or  of  any  time  thereafter,  by  gilding  at  least 

t/ltrty  days'  previous  notice  thereof  in  'writing. 

IN  TESTIMONY  WHEREOF,  the  said  parties  halje  hereunto  subscribed  their  names  and 
affixed  their  seals  the  day  and  year  first  abo'he  -written. 

T^^^    David  Wright,  James  L,  Converse,    [^.^A 

Henry  0.  Harlan,      [Seal^ 


156  TITLE. 

702.  Lease. — Tho  Statute  of  Fraiuls  requires  all  contracts  not  to  be  per- 
formed vvitliin  one  year  to  he  written;  therefore,  leases  extending  over  one  year 
must  be  written  in  order  to  enforce  them.  Some  States  have  extended  verbal 
leases  to  three  years. 

703.  Rent. — Rent  is  the  compensation  given  for  the  use  of  property.  '  It 
may  be  money  or  a  part  of  the  profits  of  tlie  property,  and  is  usually  paid  monthly 
or  quarterly.  In  the  absence  of  any  statutory  regulations  or  covenants,  if  the 
property  should  be  destroyed  by  fire  or  other  causes  the  tenant  must  nevertheless 
continue  to  pay  rent  until  the  expiration  of  the  lease.  Statutory  regulations 
usually  relieve  the  tenant  from  any  such  responsibility.  For  instance,  in  Ohio, 
Maryland  and  other  States  a  covenant  or  promise  by  the  tenant  to  leave,  restore, 
surrender  or  yield  up  the  premises  in  good  repair  shall  not  have  the  effect  of  bind- 
ing him  to  erect  similar  buildings  or  pay  for  such  buildings  as  may  be  destroyed 
by  fire  or  otherwise  wdthout  negligence  on  his  part  unless  otherwise  expressly 
provided  by  Aiitten  agreement,  or  covenant  that  he  shall  be  so  bound. 

704.  Assigijjnent  and  Subletting. — If  the  lease  be  silent  as  to  assigning  and 
Subletting  the  premises,  the  tenant  may  assign  his  entire  interest  to  a  third  party. 
If  he  give  up  his  entire  interest  it  is  called  Assignment.  If  only  a  part  of  the 
premises  be  rented  by  a  tenant  to  another  it  is  called  Subletting.  Leases  usually 
contain  provisions  prohibiting  the  tenant  from  subletting  or  assigning  his  interest. 
If  the  tenant  violate  these  provisions  the  landlord  may  re-enter  and  take  posses- 
sion of  the  property. 

705.  Distraint  for  Rent. — To  distrain  for  rent  is  the  right  that  the  landlord 
has  to  seize  and  to  sell  the  personal  property  found  on  the  premises  leased  to  the 
tenant  to  satisfy  his  claim  for  the  rent  that  is  due, 

706.  Renewal  of  Lease. — If  at  the  end  of  the  term  no  new  lease  be  made,  and 
the  tenant  holds  over,  there  is  an  irrebuttable  presumption  that  the  old  lease, 
with  all  its  provisions,  is  renewed,  A  rents  a  house  of  B  for  one  year.  At  the 
expiration  of  his  lease  nothing  is  said  about  a  renewal,  but  A  continues  to  keep 
possession.  He  will  be  bound  for  another  year  under  the  terms  of  the  former 
lease. 


CHAPTER  XLIV. 

TITLE. 

707.  Definition. — Title  is  the  means  whereby  an  owner  of  an  estate  acquires 
his  right  to  property  and  his  right  of  possession.  When  the  owner  of  real  prop- 
erty dies  without  having  disposed  of  it,  the  law  does  it  for  him.     Leaving  no  will. 


TITLE.  157 

he  is  said  to  die  intestate.  The  persons  to  whom  the  law  gives  his  property  are 
called  his  heirs  and  he  their  ancestor,  and  the  title  by  which  they  take  the  prop- 
erty is  called  title  by  descent.  All  other  methods  of  acquiring  property,  whether 
by  operations  of  law  or  by  acts  of  the  parties,  are  by  pu  chase. 

708.  Deed. — The  usual  method  of  acquiring  title  to  real  property  is  by  deed. 
A  deed,  as  applied  to  real  estate,  is  a  written  instrument  under  seal  whereby  one 
person  conveys  an  estate  to  another.  The  most  important  deeds  are  what  are 
commonly  known  as  warranty  and  quit-claim  deeds.  The  warranty  deed  is  the 
one  universally  used. 

709.  Differences  Between  Warranty  and  Quit-Claim  Deed. — In  a  quit-claim 
deed  the  grantor  conveys  only  his  own  title,  and  no  more.  The  grantee  has  no 
cause  of  action  against  him  if  he  should  be  ousted  by  others,  for  the  grantor  does 
not  warrant  that  his  title  is  superior  to  all  others.  He  simply  relinquishes  his 
own  interest  in  the  property.  In  a  warranty  deed  the  grantor  conveys  not  only 
his  own  title  and  interest  in  the  property,  but  makes  certain  promises  or  warran- 
ties, called  covenants,  concerning  the  title  which  he  conveys. 

^^''The  most  usual  covenants  are:  1.  That  he  (grantor)  has  the  estate  which 
he  assumes  to  convey.  2.  That  there  are  no  incumbrances  on  the  property,  such 
as  a  right  of  dower,  outstanding  mortgages,  mechanics'  liens,  unpaid  taxes,  etc. 
3.  That  the  grantor,  his  heirs  and  successors  hold  against  all  persons  claiming  title 
or  interest  in  the  land.  This  covenant  runs  with  the  land,  and  anyone  who  is 
ousted  may  sue  the  grantor  for  the  purchase  price  and  interest.  There  are  many 
other  interesting  points  about  a  deed,  but  we  do  not  deem  it  advisable  to  enter 
into  a  further  discussion  of  the  requisites  of  a  deed,  for  no  layman  would  trust  to 
his  own  knowledge  to  draw  up  or  examine  one  with  a  view  to  determining  its 
correctness.  Lawyers  and  real  estate  conveyancers  are  employed  for  this  pur- 
pose.    The  following  is  a  form  for  a  warranty  deed: 

711.  Form. 

WARRANTY  DEED, 

xUIJl^  ^  IVUvllvllvVf  Made  this  nineteenth  day  cf  September,  in  the  year  of 
our  Lord,  one  thousand  nine  hundred  and  five,  betiveen  James  R.  Con<way  and  Clara 
M.  Con<Tvay,  his  "wife,  of  the  City  of  Philadelphia  and  State  of  Pennsylvania,  parties  of  the 
first  part,  and  Daniel  L.  Herford  of  the  City  of  York  and  the  State  of  Pennsylvania,  party  of 
thejsecondpart, 

Z:'  WITNESSETH,  That  the  said  parties  of  the  first  part,  for  and  in  consideration  of  the  sum 
of  One  Thousand  Dollars,  la'wful  money  of  the  United  States  of  America,  unto  them  <well  and 
truly  paid  by  the  said  party  of  the  second  part,  at  or  before  the  sealing  and  delivery  of  these 
presents,  the  receipt  vohereof  is  hereby  acknovjledged,  have  granted,  bargained,  sold,  aliened, 
enfeoffed,  released,  and  confirmed,  and  by  these  presents  do  grant,  bargain,  sell,  alien,  enfeoff, 
release,  and  confirm  unto  the  said  Daniel  L.  Herford,  his  heirs  and  assigns,  all  that  lot  of 


158  MORTGAGES. 

ground  situated  in   the  City  of  Philadelphia  and  the  State  of  Pennsyl'vania,  and  kno'wn  ana 
described  as  follo<ws,  that  is  to  say : 

BEGINNING  for  the  sam"  on  the  'west  side  of  Charles  Street  at  the  distance  of  100  feet 
northerly  from  the  corner  formed  by  the  intersection  of  the  north  side  of  Market  Street  and  the 
tvest  side  of  Charles  Stree*  and  running  thence  northerly  binding  on  the  -west  side  of  Charles 
Street  for  50  feet,  thence  'westerly  parallel  <with  Market  Street  100  feet  to  the  east  side  of  an 
alley  W  feet  Tvide  there  situated;  thence  southerly  binding  on  the  east  side  of  said  alley 
'with  the  use  thereof  in  common  50  feet;  thence  easterly  parallel  'with  Market  Street  WO  feet 
to  the  place  of  beginning. 

TOGETHER  'with  the  building  thereupon,  and  the  'ways,  'water  courses,  rights,  liberties, 
pri'vileges,  hereditaments,  and  appurtenances  'whatsoe'ver  thereunto  belonging  or  in  any  'wise 
appertaining,  and  the  re'versions  and  remainders,  rents,  issues,  and  profits  thereof;  and  all 
the  estate,  right,  title,  interest,  property,  claim  and  demand  'whatsoe'ver  of  the  said  parties  of 
the  first  part  in  la'w,  equity  or  other'wise  ho'wsoe'oer,  of,  in  and  to  do  the  same  and  e'hery 
part  thereof. 

TO  HAVE  AND  TO  HOLD  the  lot  of  ground  and  premises  hereby  granted  to  the  said  party 
of  the  second  part,  his  heirs  and  assigns,  fore'ver  in  fee  simple.  And  the  said  parties  of  the 
first  part,  their  heirs,  executors  and  administrators,  do  by  these  presents  co'venant,  grant,  and 
agree  to  and  'with  the  said  party  of  the  second  part,  his  heirs  and  assigns,  that  they,  the  said 
parties  of  the  first  part,  their  heirs,  all  and  singular,  the  hereditaments  and  premises  herein 
abo'be  described  and  granted,  or  mentioned  and  intended  so  to  be,  'with  the  appurtenances,  unto 
the  said  party  of  the  second  part,  and  his  heirs,  and  against  the  said  parties  of  the  first  part, 
and  their  heirs,  and  against  all  and  e'hery  other  person  or  persons  'whomsoe'ber  la'wful  claiming 
or  to  claim  the  same  or  any  part  thereof,  shall  and  'will  'warrant  and  fore'ver  defend. 

In  'witness  'whereof,  the  said  parties  to  these  presents  ha've  hereunto  set  their  hands  and 
seals  the  day  and  year  first  abo've  'written. 

Test:  James  R,  Conway^      [seal] 

Stephen  S.  C larky  J,  P.  Clara  M,  Conway,     [seal] 

"'-Deeds  must  be  acknowledged  and  recorded  according  to  the  laws  of  the 
different  States. 


CHAPTER  XLV. 

MORTGAGES. 

713.  Definition. — A  mortgage  is  an  instrument  conveying  property  upon 
condition  as  security  for  the  payment  of  some  debt  or  the  performance  of  some 
act,  and  is  to  become  void  upon  payment  or  performance.  The  person  giving 
the  mortgage  is  called  the  mortgagor,  and  the  person  in  whose  favor  it  is  drawn 
is  called  the  mortgagee.  The  mortgage  conveys  to  the  mortgagee  the  legal  title 
.0  the  estate. 


MORTGAGES.  159 

714.  Equity  of  Redemption. — The  equity  of  redemption  is  the  right  that 
remains  in  the  mortgagor  to  redeem  the  estate  conveyed  by  payment  of  the  debt. 
When  the  debt  is  paid  the  mortgage  becomes  void  and  the  legal  estate  returns  to 
the  mortgagor.  A  person  may  give  as  many  mortgages  as  other  parties  are  will- 
ing to  take.  A  mortgage  first  recorded  is  called  first  mortgage;  second  recorded, 
second  mortgage,  etc.,  and  when  foreclosure  is  made,  if  the  proceeds  of  the  sale  are 
exhausted  in  satisfying  the  first  mortgage,  the  second  mortgage  will  remain  un- 
satisfied. The  first  mortgagee  is  entitled  to  have  his  claim  fully  satisfied  notwith- 
standing the  pressing  demands  made  by  the  other  mortgagees  of  the  same  prop- 
erty that  their  claims  should  receive  some  consideration. 

715.  Possession. — It  is  the  rule  in  this  country  that  the  mortgagor  retains 
possession  of  the  mortgaged  premises.  When  he  does  he  takes  the  rents  and 
profits  free  of  any  claims  of  the  mortgagee,  but  he  is  not  permitted  to  commit 
waste.  If  the  mortgagee  takes  possession  he  must  apply  the  rents  and  profits  to 
the  debt  secured  by  the  mortgage. 

716.  Insurable  Interest. —  Both  the  mortgagor  and  the  mortgagee  have 
insurable  interests  in  the  property.  If  the  mortgagee  insures  at  his  own  expense 
he  is  entitled  to  the  insurance  money  free  of  the  debt,  i.  e.,  he  need  not  apply  the 
insurance  money  to  the  debt.  If  the  mortgagor  insure,  and  without  any  agree- 
ment that  it  is  for  the  benefit  of  the  mortgagee,  he  is  entitled  to  the  insurance 
money  free  from  any  claim  of  the  mortgagee. 

717.  Foreclosure. — If  the  equity  of  redemption  be  lost  or  barred  by  a  failure 
to  make  payment  the  mortgagee  has  a  right  of  foreclosure.  This  consists  in  filing 
a  bill  in  a  court  of  equity  asking  for  a  decree  requiring  the  property  covered  by 
the  mortgage  to  be  sold  and  that  the  proceeds  of  the  sale  be  applied  to  satisfying 
the  mortgagor's  debt.  The  court  will  issue  a  decree  requiring  the  property  to  be 
advertised  for  sale,  and  to  be  sold  at  public  auction.  After  a  ratification  of  the 
sale  by  the  court  the  proceeds  will  then  be  applied  to  the  mortgagee's  claim.  If 
anything  remain  of  the  proceeds  of  the  sale  it  is  returned  to  the  mortgagor.  This 
procedure  is  known  as  an  equitable  foreclosure  and  is  the  one  universally  adopted 
by  the  States.  The  other  method  of  foreclosure  is  when  the  court  orders  the  title 
to  be  made  absolute  in  the  mortgagee.  In  this  case  the  mortgagee  takes  posses- 
sion of  the  premises  as  his  own.  This  is  known  as  a  strict  foreclosure,  and  is  very 
unpopular  in  this  country,  because,  in  many  instances,  the  mortgagee  acquires 
property  worth  many  times  the  value  of  the  debt. 

718.  Statutory  Regulations. — It  is  not  deemed  advisable  in  a  work  of  this 
nature  to  give  further  details  as  to  the  execution,  recording,  release,  assignment, 
etc.,  of  mortgages,  as  it  is  regulated  by  statutes,  which  vary  in  the  different  States. 
Furthermore,  not  even  the  shrewdest  and  most  prudent  business  man  would  ever 
attempt  to  trust  these  matters  to  his  own  knowledge,  because  thev  abound  in 


/60  MORTGAGES. 

technicalities  and  formalities  which  are  understood  only  by  lawyers  and  real 
estate  conveyancers,  who  have  made  a  special  study  of  them,  and  it  is  not  our 
purpose  to  prepare  students  taking  a  commercial  course  to  do  their  own  convey- 
ancing.    The  following  form  illustrates  a  mortgage. 

719.  Form. 

MORTGAGE  {Short  Form), 

VcunlS  ^lluClXillrVt  Made  this  nineteenth  da.y  of  September,  in  the  year  one 
thousand  nine  hundred  And  five,  betiveen  George  R,  Martin  of  the  County  of  Defiance 
and  the  State  of  Ohio,  party  of  the  first  part,  and  Da<vid  C.  Ramsey  of  the  City  of  Bryan  and 
the  State  of  Ohio,  party  of  the  second  part,  ivitnesseth,  that  the  said  party  of  the  first  part,  in 
consideration  of  the  sum  of  One  Dollar  to  him  duly  paid  before  the  deli'very  hereof,  has  bar- 
gained and  sold,  and  by  these  presents  does  grant  and  con'vey  to  the  said  party  of  the  second 
part,  and  his  heirs  and  assigns  fore'ver,  all  that  tract  of  land  situated  in  Defiance  County  and 
State  of  Ohio  hereby  described,  that  is  to  say  : 

BEGINNING  for  the  same  {here  describe  the  property)  'with  the  appurtenances,  and  all  the 
estate,  right,  title,  and  interest  of  the  said  party  of  the  first  part  therein. 

THIS  GRANT  is  intended  as  a  security  for  the  payment  of  T'wel'he  Hundred  Dollars 
loaned  by  the  party  of  the  second  part  to  the  party  of  the  first  part  to  be  paid  <with  interest  at 
six  per  cent,  per  annum  at  the  expiration  of  one  year  from  the  date  of  these  presents,  Tuhich 
payments,  if  duly  made,  tuill  render  this  conveyance  void.  And  if  default  shall  be  made  in 
the  payment  of  the  principal  or  interest  abo'be  mentioned,  then  the  said  party  of  the  second  part, 
or  his  executors,  administrators,  or  assigns,  are  hereby  authorized  to  sell  the  premises  abo'be 
granted,  or  so  much  thereof  as  vjill  be  necessary  to  satisfy  the  amount  then  due,  'with  costs 
and  expenses  alloTved  by  lav). 

In  ^witness  ^whereof,  the  said  party  of  the  first  part  has  hereunto  set  his  hand  and  seal  the 
day  and  the  year  first  above  'written. 

Test:  James  U.  Clark,  George  R.  Martin,    [seal] 

Mortgages  must  be  acknowledged  and  recorded  the  same  as  deeds. 

GENERAL  REVIEW  QUESTIONS. 

1.  Define  property.  2.  Distinguish  between  corporeal  and  incorporeal  property.  3.  Wliat 
is  an  easement?  4.  Distinguisli  between  real  and  personal  property.  5.  What  is  a  personal 
estate?  6.  Define  real  estate.  7.  What  is  meant  by  a  freehold  estate?  8.  Define  a  fee  simple 
estate.  9.  What  is  a  life  estate?  10  Explain  an  estate  in  dower.  11.  What  is  the  husband's 
interest  in  his  wife's  real  property  called?  12.  Who  is  a  landlord?  13.  Who  is  a  tenant?  14. 
What  is  tenancy  for  years?  15.  What  is  rent?  16.  When  may  a  tenant  assign  or  sublet  his 
lease?  17.  What  remedy  has  a  landlord  to  enforce  payment  of  rent?  18.  What  is  lUlc  as 
applied  to  real  property?  19.  Who  is  an  intestate?  20.  Who  are  heirs?  21.  Define  a  deed. 
22.  What  is  a  warranty  deed?  23.  What  is  the  peculiarity  of  a  quit-claim  deed?  24.  Wliat 
is  a  covenant?  25.  Name  the  usual  covenants  in  a  warranty  deed.  26.  What  is  a  mortgage? 
27.  What  is  the  object  of  a  mortgage?  28.  Who  are  the  mortgagor  and  mortgagee?  29.  What 
is  meant  by  equity  or  redemption?     30.  How  is  a  mortgage  foreclosed? 


SURETY  AND  OUARANTYSHIP.  161 

CHAPTER  XLVI. 
SURETY  AND  GUARANTYSHIP. 

720.  Definition. — When  a  party  agrees  to  become  responsible  for  the  debt  of 
another,  or  the  performance  of  some  act  by  him,  it  is  a  guaranty  or  surety. 
"Guarantor"  and  "Surety"  are  often  used  indiscriminately  as  synonymous  terms, 
but  there  is  a  distinction,  which,  though  technical  and  sometimes  difficult  of 
application,  it  is  of  sufficient  importance  to  require  an  explanation.  A  surety  is 
bound  with  his  principal  by  having  signed  the  same  instrument  at  the  same  time 
and  on  the  same  consideration.  He  is  an  original  promisor  and  debtor  from  the 
beginning.  On  the  other  hand,  the  contract  of  a  guarantor  is  his  own  separate 
undertaking,  generally  made  and  executed  before  or  after  and  independently  of 
the  contract  which  created  the  debt  or  which  requires  the  performance  of  a  certain 
act. 

721.  The  Contract  Must  Be  Written. — The  Statute  of  Frauds  requires  all  con- 
tracts whereby  a  person  agrees  to  become  responsible  for  the  debt  or  wrongful  act 
of  another  to  be  written.  Therefore,  an  oral  promise  to  become  responsible  for 
the  debt  of  another  or  the  performance  of  some  act  by  him  is  not  binding. 

722.  Collateral  Undertaking. — The  contract  of  a  guarantor  is  a  collateral 
undertaking,  and  in  order  to  bring  it  within  the  Statute  of  Frauds  the  party  for 
whom  the  promise  is  made  must  be  liable  to  the  party  to  whom  it  is  made.  A's 
promise  to  pay  B  a  debt  due  from  C  need  not  be  in  writing,  provided  the  promise 
is  made  in  consideration  that  B  gives  C  a  release,  because  C,  being  no  longer  liable, 
it  is  not  a  case  of  guaranty.  But  an  oral  promise  to  pay  the  debt  of  another,  the 
original  debt  not  being  released,  is  within  the  Statute.  It  is  absolutely  essential 
that  the  guaranty  be  for  the  payment  or  performance  of  something  for  which 
another  person  is  liable. 

723.  Consideration. — There  must  be  a  sufficient  consideration  to  uphold  the 
contract  of  guaranty.  In  case  of  a  surety  the  consideration  of  the  principal  con- 
tract is  sufficient  for  the  suretyship.  If  the  guaranty  be  made  at  the  same  time 
the  principal  contract  is  made  one  consideration  for  both  is  sufficient,  but  if  it  be 
made  before  or  after  the  principal  contract  there  must  be  a  new  consideration. 
The  consideration  for  the  guaranty  must  be  expressed  in  the  memorandum  in  the 
following  States;  Maryland,  Alabama,  Delaware,  Illinois  and  Wisconsin.  While 
the  other  States  do  not  require  the  consideration  to  be  expressed,  it  is  prudent  in 
all  cases  lo  express  it.     Tlie  plirase  "value  received,"  is  snliicient  to  express  the 


162  SURETY  AND  GUARANTYSHIP. 

consideration.  "We  take  pleasure  in  recommending  A  to  B,  and  agree  to  become 
responsible  for  S400  to  said  B  in  thirty  days  after  the  completion  of  the  work." 
It  was  held  that  the  guaranty  was  void,  because  the  consideration  was  not 
expressed  in  the  paper  itself,  and  parol  evidence  was  inadmissible  to  establish  it. 
In  those  States,  however,  where  the  consideration  need  not  be  expressed  in  the 
contract,  such  a  guaranty  would  be  valid. 

724.  Guaranty  of  Payment  and  Collection. — There  is  a  difference  between 
guaranty  of  payment  and  guaranty  of  collection.  In  case  of  guaranty  of  pay- 
ment the  guarantor  can  be  sued  at  once  upon  refusal  of  the  principal  to  pay.  In 
guaranty  of  collection  the  principal  must  be  sued  first,  and  if  the  judgment  can- 
not be  satisfied  out  of  the  debtor's  property,  then  action  may  be  brought  against 
the  guarantor.  All  legal  remedies  must  first  be  exhausted.  To  the  creditor  a 
guaranty  of  payment  is  preferable  to  a  guaranty  of  collection.  The  following 
represent  forms  for  guaranty  of  payment  and  collection  to  be  endorsed  on  a  note: 

Guaranty  of  Payment.  Guaranty  of  Collection. 


For  value  received  I  hereby 
guarantee  the  -payment  of 
the  within  note. 

C.  L.  Brown. 


For  value  received  I  liereby 
guarantee  the  collection  of 
the  within  note. 

C.  0.  Mason. 


725.  Guaranty  for  an  Existing  Debt, — The  following  form  is  sufficient  to 
guarantee  the  payment  of  an  existing  debt: 

Chicago,  III.,  May  19,  1905. 
James  R.  Curtis, 

Detroit,   Mich.: 
Dear  Sir — If  you  will  extend  D.  L.  Coy  thirty  days'  additional  credit  on  his  $2000  note, 
which  is  due  on  the  24th  inst.,  I  vdW  guarantee  its  payment  at  tiie  expiration  of  that  time. 

Yours  truly,  A.  L.  Jones. 

726.  Continuing  Guaranty. — It  is  generally  held  that  a  letter  guaranteeing 
the  payment  of  purchases  is  confined  to  the  first  sales,  and  not  to  any  and  all 
subsequent  sales.  Thus,  where  the  guarantor  wrote,  "Please  d^J-^r  to  A  goods 
as  he  may  want  from  time  to  time  not  exceeding  $300  in  amount,  and  if  not  paid 
for  by  him  within  thirty  days  I  will  be  responsible  for  the  same,"  it  was  held  that 
the  guaranty  was  exhausted  by  the  first  purchase  of  goods  amounting  to  $300. 
The  guaranty  may,  however,  be  so  worded  as  to  secure  the  performance  of  suc- 
cessive debts  and  acts;  if  so,  it  is  then  called  a  continuing  guaranty.  The  follow- 
ing form  illustrates  such  a  guaranty: 


SURETY  AND  GUARANTYSHIP.  163 

Baltimore,  May  19,  1905. 
VTessrs.  Hamburger  &  Sons, 
New  York  City: 
Gentlemen — For  value  received  I  hereby  guarantee  the  payment  of  all  goods  that  you  may 
sell  to  Fred.  D.  Roe,  upon  the  usual  terms  of  credit,  in  any  amount  not  exceeding  $2000.     This 
letter  is  designed  as  a  continuing  guaranty. 

Yours  respectfully, 

Charles  P.  Wilson. 

727.  Guarantor's  Liability. — A  guarantor  or  surety  does  not  become  liable 
until  there  is  a  default  on  the  part  of  the  principal  to  perform  his  contract.  Their 
liability  cannot  be  extended  to  any  other  debts  or  transactions  than  those  covered 
by  the  contract.  This  rule  is  rigidly  enforced.  The  courts,  when  there  is  a  doubt 
as  to  the  meaning  of  a  contract  of  guaranty,  construe  it  in  favor  of  the  guar- 
antor. 

728.  Subrogation. — Subrogation  is  the  placing  of  one  person  in  the  legal 
rights  of  another  person,  called  the  creditor;  that  is,  when  a  guarantor  pays  the 
debt  of  his  principal  he  is  entitled  to  all  the  rights  and  securities  that  the  creditor 
holds  against  his  debtor.  If  the  creditor  part  with  or  dispose  of  any  securities 
which  would  protect  the  guarantor,  he  discharges  him  from  liability  on  his  guar- 
anty. 

729.  Contribution. — When  there  is  more  than  one  surety  or  guarantor,  and 
the  debt  is  paid  by  one  of  th^m,  he  is  entitled  to  contribution  from  his  co-surety 
or  co-guarantors.  Each  surety  must  pay  his  fro  rata  share,  and  is  not  discharged 
from  his  obligation  until  he  has  done  so.  The  payment  by  one  of  them  does  not 
discharge  the  others. 

730.  Surety  or  Guarantor,  How  Discharged. — A  surety  or  guarantor  may  be 
discharged  from  his  obligation  without  payment  in  a  number  of  ways,  the  most 
important  of  which  are: 

1.  Allowing  additional  time  for  payment. 

2.  Alterations  and  laches. 

3.  Fraud. 

731.  Allowing  Additional  Time  for  Payment. — Additional  time  for  payment 
given  by  the  creditor  to  the  principal  without  the  consent  of  the  surety  or  guar- 
antor ^\'ill  discharge  them  from  all  liability.  But  the  agreement  for  the  extension 
of  time  must  be  based  on  a  valuable  consideration,  otherwise  the  agreement  for 
such  an  extension  would  be  invalid,  and  the  surety  or  guarantor  would  continue 
to  be  liable.  In  case  of  a  debt,  if  the  debtor  agree  to  pay  a  greater  rate  of 
interest,  or  pays  interest  in  advance,  it  will  be  a  sufficient  consideration  for  an 
extension  of  time,  and  thus  discharge  the  guarantor.  Paying  interest  is  generally 
held  to  be  a  suflficient  consideration  for  the  extension  of  time.     While  the  courts 


164  SURETY  AND  GUARANTYSniP. 

are  not  in  harmony  on  this  point,  yet  the  weight  of  authority  seems  to  uphold  the 
rule  as  stated. 

732.  Alterations  and  Laohes. — Any  alterations  or  chanfies  in  the  terms  of  the 
contract  bptwoen  the  (lel)tor  and  creditor  will  in  every  case  discharge  the  surety 
or  guarantor.  Their  liability  is  only  on  the  original  contract,  and  they  cannot 
belieid  if  it  be  modified  without  their  consent.  So,  if  the  creditor  be  guilty  of 
laches,  whereby  the  security  to  which  the  surety  or  guarantor,  on  paying  the  debt, 
would  be  entitled,  is  lost,  they  will  be  released.  Thus,  where  a  creditor  has  in 
his  possession  property  belonging  to  the  debtor,  which  he  might  apply  to  the 
extinguishment  of  the  debt,  but  instead  allows  it  to  pass  to  the  debtor,  the  surety 
is  discharged. 

733.  Fraud. — If  there  has  been  any  fraud  practiced  on  the  surety  or  guar- 
antor by  the  creditor  or  debtor  with  the  consent  of  the  .creditor,  it  discharges  the 
surety  or  guarantor  from  all  liability. 

734.  Surety,  Guarantor  and  Endorser. — A  surety  is  liable  with  his  principal 
as  an  original  promisor.  He  need  not  be  notified  of  the  default  of  the  principal, 
and  action  need  not  be  taken  against  the  debtor  immediately  upon  default  in 
order  to  hold  the  surety.  A  guarantor's  liability  is  secondary  and  conditional. 
He  may  be  discharged  from  liability  if  notice  of  default  by  debtor  be  not  given 
him,  and  this  will  always  be  the  case  where  the  guarantor  has  been  damaged  by 
not  having  received  a  notice.  An  endorser's  liability  is  conditional,  depending 
on  due  presentment  for  payment  and  due  notice  of  dishonor.  Notice  must  in  all 
cases  be  given  him  except  in  case  of  waiver.  A  surety  is.preferable  to  a  guarantor 
because  acts  which  might  discharge  a  guarantor  will  not  discharge  a  surety,  and 
a  guarantor  is  preferable  to  an  endorser  for  the  same  reason.  In  case  of  a  surety 
the  creditor  may  sue  the  surety  at  once;  in  guaranty  he  cannot. 


CASES. 

(Give  reasons  for  answers.) 

1.  A  agreed  to  l)uild  a  house  for  B  after  certain  plans  and  specifications.  Subsequently 
B  became  dissatisfied  with  A's  responsibility,  and  through  B's  solicitations  C  endorsed  on  the 
contract  made  by  A  and  B  tlie  following:  "I  hereby  guarantee  the  performance  of  the  within 
contract.     C."     Is  C  liable  on  his  guaranty?'^ 

2.  A  trust  company  gave  a  bond  to  the  Merchants'  Bank  for  the  faithful  performance  and 
personal  conduct  of  B  as  its  cashier.  The  bank  engaged  in  buying  and  selling  grain  as  a  specula- 
tion. B  was  entrusted  with  the  handling  of  the  money  for  these  speculative  investments,  and 
having  embezzled  $8000  of  the  bank's  money,  the  trust  company  was  sued  on  its  bond  to  malce 
good  the  loss  the  bank  had  sustained.     What  is  its  liabiUty?"^ 

3.  A  guarantor  was  sued  on  a  contract  which  he  executed  for  B's  faithful  performance  for 


FIXTURES.  165 

one  year  of  his  duties  in  a  position  of  trust.     At  the  expiration  of  tlie  year  B  embezzled  money 
belonging  to  his  employer.     Is  the  guarantor  lial>le  for  B's  misconduct?"' 

4.  A  agreed  to  build  a  warehouse  for  B  and  to  have  it  completed  within  one  year.  The  per- 
formance of  this  contract  was  guaranteed  by  C.  It  was  found  that  A  could  not  complete  the 
building  within  a  year,  and  it  was  agreed  with  1^  that  the  latter  was  to  extend  the  time  for  com- 
pletion one  month,  and  that  A  should  forfeit  $500  for  extension  of  time  thus  granted  him.  A 
absolutely  failed  to  complete  the  building  in  the  time  thus  agreed  upon.     Is  the  guarantor  liable?"^ 

5.  The  Fidelity  Trust  Co.  guaranteed  the  faithful  performance  of  B  as  paying  teller  of  the 
First  National  Bank  for  one  year.  Two  months  after  B  entered  upon  his  duties  as  teller  he 
embezzled  $3000.  The  bank  having  discovered  the  embezzlement,  made  an  agreement  with  B 
that  if  he  made  good  the  amount  they  would  not  prosecute  him  and  would  still  allow  him  to 
retain  his  present  position.  At  the  end  of  the  j^ear  the  company  renewed  his  bond  for  his  personal 
integrity  and  honesty,  not  having  any  knowledge  of  B's  misdoings.  In  the  second  year  B  again 
embezzled  $12,000  of  the  bank's  money.  The  bank  sued  the  Fidelity  Trust  Co.  to  make  good 
the  money  B  had  appropriated  for  himself.     Is  the  company  liable  on  its  bond?"^ 


GENERAL  REVIEW  QUESTIONS. 


1.  Defir.e  guaranty.  2.  Who  is  a  guarantor?  3.  What  is  the  difference  between  the  liability 
of  a  guarantor  and  a  surety?  4.  May  a  contract  of  guaranty  be  oral?  5.  What  is  meant  by 
subrogation?  6.  When  is  a  surety  entitled  to  contribution?  7.  What  is  a  continuing  guaranty? 
8.  Define  guaranty  of  payment.  9.  What  is  a  guaranty  of  collection?  10.  What  is  the  difference 
between  the  liability  of  a  guaranty  of  payment  and  of  collection?  11.  When  will  the  considera- 
tion that  supports  the  contract  between  the  creditor  and  debtor  be  sufficient  to  support  the  con- 
tract of  guaranty?  12.  How  may  a  surety  be  discharged?  13.  When  will  an  extension  of  time 
release  a  surety  or  guarantor?  14.  What  is  the  difference  between  a  surety,  guarantor  and 
endorser? 


CHAPTER  XLVII. 
FIXTURES. 

735.  Definition. — A  fixture  is  a  chattel  that  is  annexed  to  real  property  in 
such  a  way  as  to  become  a  part  of  it.  Whether  what  is  annexed  is  to  be  consid- 
ered permanent  and  intended  to  become  a  part  of  the  realty  depends  upon  the 
intentions  of  the  annexer,  which  intention  is  to  be  inferred  from  his  relation  to 
the  land,  from  the  mode  of  annexation  and  from  the  appropriation  of  the  chattel 
to  permanent  use  on  or  with  the  land. 

736.  The  Right  to  Remove  Fixtures. — How  to  determine  what  are  fixtures, 
and  the  right  to  remove  them,  is  the  only  question  for  consideration  in  a  work  of 


166  FIXTURES. 

this  nature.  The  tiuestion  us  to  the  exercising  of  the  riglit  of  removal  arises  be- 
tween landlord  and  tenant,  vendor  and  vendee,  mortgagor  and  mortgagee.  Per- 
manent ownership  implies  permanent  improvements;  therefore,  chattels  annexed 
to  land  by  the  owner  are  presumed  to  be  permanent  and  a  part  of  the  realty. 
Temporary  possession  implies  temporary  improvements;  therefore,  improve- 
ments made  by  a  tenant  are  presumed  to  be  only  temporary.  A  tenant,  therefore 
will  be  permitted  to  remove  improvements  which  he  has  made  to  the  property, 
while  a  vendor  will  not  be.  But  the  tenant  cannot  remove  the  improvements  if 
it  will  result  in  injury  to  the  property,  neither  is  he  entitled  to  compensation 
from  the  landlord  for  the  improvements  he  has  made. 

737.  Degree  of  Annexation. — The  old  cases  invariably  hold  that  it  is  neces- 
sary that  there  should  be  some  physical  annexation  of  the  chattel  that  it  may 
become  a  part  of  the  realty,  but  later  cases  hold  that  there  need  not  be  actual 
annexation;  that  a  constructive  annexation  is  sufficient  to  show  that  it  was  con- 
sidered to  be  permanent  and  a  fixture.  Keys  to  a  house  or  fences  on  land  are 
illustrations  of  constructive  annexation.  Physical  annexation  it  only  evidence 
to  show  that  there  was  an  intention  to  make  it  permanent. 

738.  If  the  Chattel  Be  Permanently  Annexed,  and  Its  Removal  Would  Injure 
the  Property,  It  Cannot  Be  Taken  Away. — The  following  cases  show  that  articles 
may  be  fixtures  and  still  not  be  permanently  annexed  to  the  realty.  Gas  and 
water  pipes  running  under  the  floors  and  walls  of  a  house  are  non-removable 
fixtures,  but  gas  and  water  pipes  fastened  to  the  walls  by  means  of  hooks,  and 
passing  through  holes  in  the  floor,  are  removable  when  erected  by  the  tenant. 
Chandeliers,  burners  and  gas  fixtures  attached  to  the  pipes  by  means  of  screws, 
etc.,  are  generally  removable.  Such  articles  are  considered  as  necessary  furniture 
like  carpets  and  pictures,  but  in  the  sale  of  a  house,  as  it  stands  ready  for  occu- 
pancy, the  gas  fixtures  will  be  included  unless  reserved.  Stoves  and  furnaces 
put  up  in  the  usual  way  are  removable  by  the  party  erecting  them,  but  when 
built  in  the  brickwork  or  chimneys  they  are  fixtures,  and  not  removable.  In  the 
sale  of  a  saw-mill  chains  used  in  drawing  up  logs,  which  could  be  hooked  and 
unhooked  at  pleasure,  were  held  to  be  a  part  of  the  mill,  being  essential  to  its  use 
as  such.  An  organ  built  in  the  recess  of  a  church,  left  for  that  purpose  and  nailed 
to  the  floor,  the  removal  of  which  would  destroy  the  architectural  design,  is  a 
fixture  and  passes  with  the  sale  of  the  building.  A  church  bell  in  a  temporary 
framework  alongside  of  a  church,  that  would  be  used  until  the  edifice  would  be 
ready  for  the  reception  of  the  bell,  is  a  fixture,  and  not  subject  to  execution  as 
personal  property.  Rails  lying  along  the  line  of  an  intended  fence  are  considered 
as  a  part  of  the  realty.  Boards  in  a  barn,  and  used  as  a  permanent  flooring,  and 
iron  posts  placed  on  the  land  for  the  purpose  of  building  fences,  cannot  be  seized 
as  personal  property.     Poles  used  for  the  cultivation  of  hops  are  a  part  of  the 


FIXTURES.  167 

realty,  although  lying  piled  upon  the  ground.  Rail,  spikes,  ties,  etc.,  brought 
on  the  property  and  designed  to  be  attached  to  the  soil  are  fixtures.  Engine, 
boilers,  burrs  and  mill  iron  brought  to  the  mill  are  fixtures  although  not  actually 
attached  to  the  land,  and  cannot  be  seized  upon  execution.  The  signboard  of  a 
hotel,  formerly  hanging  outside,  and  afterwards  removed  and  fastened  to  the  wall 
of  a  room  by  spikes,  is  a  permanent  fixture. 

739.  Machinery. — The  question  is  often  asked,  "What  machinery  may  be 
removed  from  the  premises  when  property  is  sold  or  mortgaged?"  It  is  not 
necessary  that  the  machinery  be  actually  annexed  to  the  freehold.  It  may  be 
made  a  part  of  the  realty  by  appropriation.  Troughs,  duplicate  pumps,  slate- 
dressing  machines,  all  visible  on  the  property  at  the  time  of  the  sale,  pass  with 
the  purchase,  and  cannot  be  removed  by  a  vendor.  Process  kettles  resting  on  a 
foundation  under  the  floor,  gasoline  pots  on  brick  foundations,  which  are  neces- 
sary for  the  business  for  which  the  building  was  erected,  are  parts  of  it.  Ponder- 
ous machines,  kept  in  position  by  their  own  weight,  are  fixtures,  and  not  remov- 
able. Casks,  hogsheads  and  tubs,  not  fastened,  are  fixtures,  if  they  are  too  large 
to  pass  out  of  any  opening  in  the  building.  Loose  tools  about  the  premises  are 
not  considered  fixtures. 

740.  Landlord  and  Tenant — Trade  Fixtures.— The  general  rule  is  that  all 
trade  fixtures  are  removable.  By  trade  fixtures  we  mean  fixtures  that  are  put 
upon  the  property  for  the  purpose  of  carrying  on  trade.  A  tenant  being  a  tempo- 
rary occupant,  his  erections  are  presumed  to  be  made,  not  for  the  benefit  of  the 
real  property,  but  for  the  better  enjoyment  of  his  possession.  If  the  tenant  give 
up  possession  of  the  property  in  as  good  condition  as  when  he  took  possession  the 
landlord  has  no  reason  for  complaint.  The  foil  wing  strongly  illustrate  the 
extent  to  which  the  doctrine  of  the  removal  of  fixtu  es  has  been  carried : 

741.  Fixtures  as  Between  Vendor  and  Vendee,  •Mortgagor  and  Mortgagee. — 
When  real  property  is  sold  or  mortgaged  the  fixtures  oass  to  the  vendee  or  mort- 
gagee, although  the  articles  were  annexed  and  used  for  the  purpose  of  trade,  man- 
ufacture, domestic  use  or  ornament.  The  purchaser  or  mortgagee  is  clearly 
entitled  to  everything  which  has  been  annexed  for  the  purpose  of  increasing  its 
value  or  adapting  it  to  the  purpose  for  which  it  is  used,  and  within  this  principle 
it  has  been  held  that  bathtubs  and  pipes  in  a  dwelling  and  counters  in  a  store,  etc., 
are  fixtures,  and  not  removable.  Mirrors  set  in  the  walls,  so  as  to  become  a  part 
of  them,  are  permanent  fixtures.  These  rules  as  to  the  removal  of  fixtures  may 
be  changed  or  annulled  by  an  agreement  between  the  parties,  but  where  no  agree- 
ment is  entered  into  concerning  them  the  rules  as  laid  down  prevail. 

''^^A  wooden  dwelling-house,  two  stories  high,  with  a  cellar  of  stone  and  a 
brick  chimney,  erected  by  the  tenant  for  the  purpose  of  carrj'ing  on  his  business 
as  a  dairyman,  may  be  removed  by  the  tenant  as  a  trade  fixture.     Likewise,  a 


168  FIXTURES. 

carpenter  shop  resting  on  blocks,  and  erected  by  a  tenant,  is  a  trade  fixture,  and 
so  is  a  bowling  alley.  An  icehouse  on  sills  set  in  the  ground,  and  a  water  tank 
with  a  sink,  put  up  by  the  tenant  of  a  hotel,  may  be  taken  away.  Platform 
scales,  counters,  shelves  and  partitions  are  removable  as  trade  fixtures.  ^"But 
if  the  mode  of  annexation  be  such  as  to  indicate  permanent  improvement,  or  if 
the  removal  will  cause  permanent  injury  to  the  freehold,  then  the  articles  cannot 
be  taken  away.  Thus,  a  conservatory  added  to  a  house  by  a  tenant,  being  of  a 
permanent  character,  the  removal  of  which  would  greatly  injure  the  property, 
cannot  be  taken  away,  nor  can  a  summer-house,  which  has  been  occupied  as  a 
dwelling,  nor  glass  put  in  windows. 

744.  When  Tenant  Must  Remove  Fixtures. — The  tenant,  as  a  rule,  must 
remove  his  fixtures  before  the  expiration  of  his  lease.  If  he  abandon  posses- 
sion  he  cannot  re-enter  the  premises  and  take  away  his  chattels,  because  if 
he  leave  without  removing  them  it  is  presumed  that  he  has  given  them  to  the 
landlord. 

745.  Remedies  for  the  Protection  or  Recovery  of  Fixtures. — An  injunction 
will  be  granted  to  restrain  a  tenant,  vendor  or  mortgagor  who  is  in  possession 
from  severing  fixtures.    Replevin  also  lies  to  recover  fixtures  wrongfully  removed. 


CASES. 

(Give  reasons  for  answers.) 

1 .  A  rented  a  hall  for  dwelling  purposes,  and  put  in  several  partitions  dividing  it  into  rooms. 
At  the  expiration  of  the  lease  what  are  A's  rights  as  to  removing  the  partitions?"* 

2.  In  Case  No.  1,  if  the  right  of  removal  be  denied  A,  can  he  recover  from  the  landlord  the 
expense  of  putting  in  the  partitions?"' 

3.  A  sold  a  farm  to  B,  and  before  giving  up  possession  claimed  the  right  of  removing  a  wind 
pump  which  he  had  erected  only  the  day  before  the  sale.     Who  has  a  right  to  the  pump?^" 

4.  A  rented  a  building  of  B  and  put  in  gas  fixtures  and  ran  steam  pipes  along  the  walls 
fastened  by  hooks  for  the  purpose  of  heating  the  rooms.  A  number  of  holes  were  bored  in  the 
floor  and  walls  to  insert  the  pipes.  Has  A  a  right  to  take  away  the  improvements  when  he 
vacates  ?'«'  '« 

5.  A  rented  a  storeroom  and  put  in  counters,  shelves,  offices,  etc.,  for  the  purpose  of  carrying 
on  a  business  as  a  dry  goods  merchant.  The  counters  and  offices  were  nailed  to  the  floor  and 
the  shelving  securely  fastened  to  the  walls.  Has  the  tenant  a  right  to  remove  the  fixtures  when 
he  vacates  the  property?'" 

6.  In  Case  No.  5,  what  effect  does  the  degree  of  annexation  have  upon  the  tenant's  right  to 
remove  the  fixtures?'" 

7.  A,  who  conducted  a  retail  clothing  business  in  a  store  which  he  owned  in  fee,  sold  it  to 
B.  B  claimed  the  fixtures  that  were  in  the  building  which  had  been  used  by  A.  A  denied  this 
fight,  and  claimed  the  fixtures  as  his,  as  he  expected  to  open  another  store.  To  whom  do  the 
fixtures  belong?'".  '*» 


BAILMENTS.  169 

8.  A  put  valuable  stained  glass  windows  in  a  house  wliicli  lie  liad  rented  from  li  for  a  term 
of  years.  At  the  expiration  of  the  lease  what  are  the  tenant's  rights  as  to  removing  the  stained 
glass  window  panes  ?'^^ 

GENERAL  REVIEW  QUESTIONS. 

1.  What  is  a  fixture?  2.  To  what  degree  must  a  chattel  be  annexed  in  order  to  constitute 
it  a  fixture?  3.  What  is  meant  by  a  constructive  annexation?  4.  What  are  trade  fixtures? 
5.  What  is  the  rule  as  to  the  right  of  a  tenant  to  remove  trade  fixtures?  6.  What  right  has  a 
vendor  to  remove  fixtures?  7.  Why  is  a  tenant  allowed  greater  privileges  to  remove  improve- 
ments he  has  made  than  a  vendor?     8.  When  must  a  tenant  exercise  his  right  to  remove  fixtures? 


CHAPTER  XLVIII. 
BAILMENTS. 

746.  Definition. — Bailment  embraces  all  cases  in  which  the  owner  of  personal 
property  places  it  in  the  hands  of  another  for  some  special  purpose.  These 
special  purposes  include  borrowing,  lending,  letting,  hiring  of  things  and  services. 
The  person  who  gives  up  the  possession  of  the  property  is  called  the  bailor,  and 
the  person  receiving  the  property  is  called  the  bailee.  Merely  the  possession,  and 
not  the  ownership  of  the  property  is  transferred.  The  subject  is  divided  into 
five  specific  classes;  1.  Deposit;  2.  Mandate;  3.  Loan  for  use;  4.  Pledge;  5.  For 
hire. 

747.  Deposit. — Whenever  a  person  receives  property  from  another,  and 
agrees  to  care  for  it,  and  then  returns  it  to  the  owner  without  receiving  compen- 
sation for  the  care  bestowed  upon  the  property,  it  is  called  a  deposit.  B  stored  a 
part  of  his  household  goods  in  C's  house.  C,  not  making  any  charge  for  this  ser- 
vice, creates  a  bailment  by  deposit.  Holding  the  property  for  the  sole  benefit  of 
the  bailor  gives  the  bailee  the  right  to  terminate  the  bailment  whenever  he 
desires.  If  the  bailor  fail  to  take  possession  of  the  chattels  when  so  directed  the 
bailee  may  remove  them  from  his  premises  regardless  of  the  result  to  the  prop- 
erty. Thus,  in  the  above  illustration,  if  B  refuse  to  remove  his  household  goods 
stored  in  C's  house  when  so  ordered  C  may  place  the  goods  in  the  street,  and  if 
they  be  stolen  or  destroyed  he  will  not  in  any  way  be  liable.  This  kind  of  bail- 
ment, being  for  the  benefit  of  the  bailor,  the  holder  of  his  property  need  exercise 
only  slight  care,  and  is  liable  for  only  gross  negligence.  If  C  had  agreed  to  store 
B's  household  goods,  and  instead  of  doing  so,  had  let  them  remain  in  his  yard 


170  BAILMENTS. 

unsheltered,  he  would  be  liuble  to  H  fur  dumagCRi  to  the  goods,  because  it  was  gross 
negligence  on  his  part.  The  bailee  has  no  right  to  use  the  property,  except  when 
it  is  necessary  for  its  preservation,  and  when  returned  it  must  be  with  all  its 
increase,  viz.,  animals  with  their  young. 

748.  Mandate. — In  mandate  or  commission  the  bailee  agrees  to  bestow  some 
labor  or  service,  without  compensation,  upon  the  property  received.  The  prin- 
cipal and  really  the  only  distinction  between  a  deposit  and  a  mandate  is  that  in 
the  former  keeping  the  property  is  the  j)rincipal  feature,  while  in  the  latter  per- 
forming some  service  upon  the  property  bailed  is  the  essential  requisite.  In 
both  bailments  the  service  of  the  bailee  is  gratis,  and  the  bailee  is  liable  only  for 
gross  negligence.  A,  learning  that  B  was  going  to  the  city,  gave  him  $200  to  pay 
his  note  due  at  a  bank.  While  on  his  way  B  was  robbed  of  A's  money,  also  $150 
of  his  own.  B  was  cautious  and  careful  of  the  money  entrusted  to  him.  He  is 
not  liable  to  A  for  the  loss,  because  he  exercised  as  much  care  over  A's  money  as 
he  did  his  own,  and,  therefore,  was  not  grossly  negligent. 

^^^While  a  bailee  in  this  class  of  bailments  is  not  liable  to  the  bailor  for  non- 
feasance, yet  he  is  liable  for  malfeasance.  A  agreed  to  paint  B's  buggy  free  of 
charge.  Subsequently  he  refused  to  do  so.  This  does  not  make  him  liable  for 
breach  of  the  agreement.  But  had  A  used  the  buggy  and  broken  it  he  would  be 
liable  for  the  damages. 

750.  Liability  for  Non-Performance. — But  it  is  quite  generally  held  that  if  the 
bailee  enter  upon  a  discharge  of  his  trusts  he  will  be  bound  to  execute  it  or  pay 
damages.  Notwithstanding  that  the  services  are  gratuitous,  yet  the  delivery  of 
the  thing  bailed  is  a  sufficient  consideration  to  require  the  bailee  to  perform  his 
agreement  when  once  he  undertakes  it. 

Thus,  if  A  had  partially  painted  B's  buggy,  and  then  refused  to  finish  it,  he 
would  be  liable  to  B;  or  if  A  agree  to  deliver  an  important  letter  or  message  for  B, 
which  B  gives  him,  and  he  neglects  to  do  so  because  it  would  put  him  to  some 
inconvenience,  he  will  be  liable  to  B  for  the  damages  he  may  sustain. 

751.  Loan  for  Use. — A  loan  for  use  is  the  delivery  of  property  by  one  person 
to  another  to  be  used  by  him  for  his  own  personal  benefit.  This  class  includes  all 
gratuitous  loans.  It  being  for  the  sole  benefit  of  the  bailee,  he  is  required  to 
exercise  the  highest  degree  of  diligence,  and  is  liable  for  the  slightest  negligence. 
F,  wishing  to  make  a  display  of  jewelry  at  an  exposition,  and  not  having  a  suffi- 
cient supply  of  his  own,  borrowed  several  valuable  diamonds  of  G.  The  jewelry 
was  placed  in  a  burglar-proof  safe,  made  especially  for  the  purpose.  Robbers 
blew  open  the  safe  and  carried  off  the  jewelry.  F  need  not  incur  the  loss,  because 
it  was  not  due  to  any  neglect  or  want  of  proper  care  or  diligence  on  his  part. 

752.  How  to  Be  Used. — The  thing  borrowed  must  be  used  for  the  purpose  for 
which  it  was  loaned.     This  rule  is  most  rigidly  enforced.     If  the  thing  be  used  in 


BAILMENTS.  171 

any  other  way,  or  for  any  other  purpose  than  that  for  which  it  was  obtained,  the 
bailee  must  make  good  the  loss.  A  borrowed  B's  horse  and  buggy  to  drive  to  a 
certain  place.  He  tied  the  horse  in  the  usual  way  to  a  hitching  post.  The  horse 
became  frightened,  broke  loose  and  ran  away.  The  carriage  was  demolished 
and  the  horse  injured.  A  need  not  make  good  the  loss.  The  owner  is  the  loser. 
But  had  A  driven  to  some  other  place,  though  he  might  have  used  the  same  degree 
of  care  and  diligence,  he  would  have  been  liable,  because  he  disregarded  the  pur- 
pose for  which  he  borrowed  the  horse  and  JDUggy.  The  borrower  has  a  right  to 
the  use  of  the  property  for  the  time  for  which  it  was  borrowed,  even  though  the 
lender  make  a  request  for  its  return  before  the  expiration  of  that  time.  For 
instance,  M  borrowed  D's  wagon  for  ten  days.  In  a  couple  of  days  after  it  was 
loaned  D  wanted  to  use  it  and  asked  M  to  return  the  wagon.  M  may  keep  the 
wagon  for  the  full  time  of  the  bailment. 

753.  Pledge. — It  is  a  pledge  when  one  party  gives  personal  property  to 
another  to  hold  as  securitj^  for  the  payment  of  some  debt  or  performance  of 
some  act.  The  person  transferring  possession  is  called  pledgor;  the  person  receiv- 
ing it,  pledgee.  This  is  what  may  be  termed  a  collateral  security.  Anything 
that  is  personal  property  may  be  pledged. 

754.  Duty  of  Pledgee. — The  pledge  being  for  the  benefit  of  both  parties,  the 
pledgee  is  required  to  use  only  ordinary  care.  The  pledgee  is  not  entitled  to  use 
the  property  if  its  use  will  lessen  its  value.  Thus,  if  an  overcoat  be  pledged  to 
secure  the  payment  of  a  debt,  the  pledgee  would  have  no  right  to  wear  it.  But 
if  a  horse  be  pledged  it  should  be  used  sufficiently  to  keep  it  in  health. 

755.  Right  to  Sell. — The  pledgee  has  a  right  to  retain  possession  of  the  prop- 
erty pledged  until  the  debt  be  paid,  but  he  cannot  hold  the  property  to  cover 
debts  other  than  those  for  which  the  pledge  was  made.  If  the  debt  be  not  paid 
when  due  the  pledgee  may  either  sue  on  the  debt  or  sell  the  property.  The  prop- 
erty is  not  forfeited  to  the  pledgee.  He  must  notify  the  pledgor  to  redeem  the 
property  by  paying  the  debt,  or  otherwise  it  will  be  sold.  If,  after  giving  a 
reasonable  time,  the  debt  be  not  paid,  the  holder  may  sell  the  property  at  public 
auction.  He  should  be  sure  that  it  is  an  open  and  fair  sale.  Or,  if  he  prefer,  he 
may  file  a  bill  in  equity  asking  for  a  foreclosure,  leaving  the  sale  in  the  hands  of 
the  court.  Therefore,  after  default  by  the  pledgor,  the  pledgee  may  either  sue  on 
the  debt,  sell  the  property  at  public  auction,  or  have  it  sold  by  the  court  through 
its  officers.  When  notes  are  pledged  they  cannot  ordinarily  be  sold.  The  pledgee 
must  wait  until  maturity  of  paper,  and  then  collect  on  the  note  in  the  usual  way. 

^^^B  gave  C  his  note  at  thirty  days  for  $500,  and  a  pair  of  horses  and  buggy 
to  hold  as  security.  The  note  not  being  paid  at  maturity,  C,  without  giving  any 
notice  to  B,  sold  the  horses  and  buggy  for  $300,  while  they  were  worth  at  least 
Subsequently,  B  tendered  $500  in  settlement  of  the  note,  at  which  time 


172  BAILMENTS. 

he  was  infonncil  t  luit  tlie  horses  and  buggy  hail  hccn  sohl.  C  must  make  good  to  B 
the  value  of  the  property,  for  he  had  not  given  the  required  notice.  Had  C  notified 
B  that  he  would  sell  them  if  the  note  were  not  paid  within  a  certain  time,  and  had 
accordingly  made  the  sale,  he  would  not  have  been  liable  to  make  good  the  value 
of  the  jiledge.  for  it  was  in  conformity  with  the  recjuirements  of  the  bailment. 

757.  Pawnbrokers. — The  business  of  a  pawnbroker  comes  under  this  head, 
which  is  regulated  entirely  by  statute.  One  of  the  main  provisions  which  is  uni- 
versal is  that  the  pawnbroker  must  make  a  report  to  the  police  department  every 
day  at  noon  of  all  the  property  that  was  pledged  with  him  the  previous  twenty- 
four  hours.  They  must  not  only  describe  the  property,  but  give  a  full  description 
of  the  person  who  pledges  the  property.  This  is  done  to  assist  the  officers  in 
locating  stolen  goods. 

758.  Bailment  for  Hire. — Bailment  for  hire  includes  all  transactions  where 
pro])erty,  labor,  services  or  care  of  property  is  hired  of  another  for  a  consideration. 
ThTs  is  the  most  important  branch  of  bailments,  as  it  is  the  one  commonly  repre- 
sented in  business  affairs.  It  is  divided  into  the  following  classes:  1.  Hire  of 
things;  2.  Hire  of  services;  3.  Hire  of  custody;  4.  Hire  of  carriage. 

759.  Hire  of  Things. — Hire  of  things  is  the  hiring  by  one  person  of  the  per- 
sonal  property  or  chattels  of  another  for  a  compensation.  The  hiring  of  a  horse 
and  buggy  of  a  liveryman  represents  this  class.  If  the  hirer  use  the  property  for 
any  purpose  other  than  that  for  which  it  was  hired  he  will  be  liable  for  any  loss 
or  damage. 

""^A  hired  a  pair  of  horses  and  buggy  of  a  liveryman  to  drive  to  a  certain 
city.  He,  instead,  hitched  the  horses  to  a  heavy  wagon,  loaded  with  grain,  and 
drove  them  to  the  same  city  that  he  intended  to  drive  them  in  the  carriage.  Not 
being  used  to  heav}'^  hauling,  one  of  the  horses  injured  himself  and  became  forever 
afterwards  absolutely  worthless.  The  hirer  must  make  good  the  loss.  Had  the 
horses  given  out  while  driving  them  in  the  carriage,  or  sprained  themselves  in 
some  way,  the  hirer  would  not  have  been  Uable.  ^"^The  thing  hired  must  be 
returned  to  the  letter  in  as  good  condition  as  when  received,  excepting  ordinary 
wear  and  unavoidable  accidents.  If  a  buggy  spring  or  axle  should  break  the 
loss  falls  on  the  owner  or  letter.  In  case  of  animals,  if  a  horse  should  be  taken 
sick  the  hirer  should  employ  a  veterinary  doctor,  and  his  expense  would  have  to 
be  borne  by  the  letter,  for  there  is  an  implied  promise  in  all  these  cases  that  the 
thing  hired  is  capable  of  doing  that  for  which  it  was  hired. 

762.  Hire  of  Services. — When  one  delivers  property  to  another  to  have  some 
work  done  upon  it  for  a  compensation  it  represents  a  hire  of  service.  Leaving  a 
suit  of  clothes  with  a  tailor  to  have  cleaned  and  pressed  is  an  illustration  of  this 
class.  This  differs  from  mandate  in  that  the  bailee's  service  in  a  mandate  is 
gratis,  while  in  a  hire  for  service  his  services  must  be  paid  for. 


COMMON  CARRIER.  173 

763.  Workman's  or  Bailee's  Duties. — The  workman  may  employ  others  to 
do  the  work  for  him,  provided  it  was  not  his  own  personal  skill  and  service  that 
was  contracted  for.  B  employs  a  noted  artist  to  paint  a  picture  on  valuable 
material  furnished  by  himself.  The  artist  has  the  work  done  by  one  of  his  stu- 
dents. B  need  not  accept  the  painting,  and  can  compel  the  artist  to  pay  him  for 
the  materials  furnished. 

764.  Skill  Required. — The  workman  must  possess  the  necessary  skill  to  per- 
form that  which  he  undertakes,  and  if  he  does  not  he  will  be  liable  for  damages. 


A,  whose  occupation  is  that  of  a  blacksmith,  represented  himself  to  be  a  piano 
tuner,  whereupon  B  let  him  tune  his  piano.  B  could  not  replace  a  number  of  the 
pieces  which  he  removed,  and  otherwise  damaged  the  piano.  B  is  not  only 
civilly  liable  to  make  good  A's  loss,  but  also  criminally  liable  for  obtaining  money 
under  false  pretenses.  The  workman  may  retain  possession  of  the  property  until 
his  services  are  paid  for. 

765.  Hire  of  Custody. — A  hire  of  custody  embraces  cases  where  one  person 
engages  another  to  keep  his  goods.  The  principaf  element  is  the  custod}^  of  the 
goods.  The  bailee  has  no  work  or  labor  to  bestow  upon  them.  The  bailee  is 
required  to  use  only  ordinary  care,  as  it  is  for  the  benefit  of  both  parties.  A 
stores  his  household  goods  in  B's  warehouse,  and  for  this  privilege  pays  $4  a 
month.  The  warehouse  and  contents  are  destroyed  by  fire.  A  must  bear  the 
loss  unless  he  can  show  that  the  fire  was  caused  by  B's  carelessness.  Going 
through  the  building  with  a  lighted  cigar  would  be  carelessness,  which  would 
make  the  warehouseman  liable  in  case  of  fire.  Should  the  warehouseman  deliver 
the  goods  to  anyone  other  than  the  right  party  he  will  have  to  make  good  the  loss. 

766.  Recapitulation. — It  is  very  essential  that  the  student  bear  in  mind  the 
degree  of  care  that  is  required  of  the  bailee  in  the  different  bailments.  In  a  De- 
posit and  Mandate  the  bailor  receives  all  the  benefit;  therefore,  the  bailee  need 
exercise  only  slight  care,  and  is  liable  only  for  gross  negligence.  In  Loan  for  Use 
the  bailee  receives  all  the  benefit;  therefore,  he  must  exercise  the  greatest  care, 
and  is  liable  for  the  slightest  neglect.  In  Pledge  and  Bailment  for  Hire  both 
parties  are  benefited;  therefore,  the  bailee  is  required  to  exercise  ordinary  care, 
and  is  liable  for  ordinary  negligence. 


CHAPTER  XLIX. 

COMMON  CARRIER. 

767.  Definition. — Where  one  holds  himself  out  to  carry  the  goods  of  all 
persons  indifferently  he  will  be  considered  a  common  carrier,  and  will  incur 
the  liability  of  that  character.     Of  this  description  are  railroads,  ships,  express 


174  COMMON  CARRIER. 

companies,  ferrymen,  wagoners  and   teamsters  transporting   goods    as  a  public- 
employment. 

768.  General  Duties  and  Liabilities. — A  common  carrier  must  convey  the 
goods  of  any  person  ofTering  to  pay  his  hire,  unless  his  carriage  already  be  full  or 
the  risk  sought  to  be  imposed  upon  him  be  extraordinary,  or  be  such  as  he  is 
unable  or  unaccustomed  to  assume.  A  railroad  company  is  liable  for  refusing  to 
receive  goods  without  a  valid  excuse.  A  common  carrier  stands  in  the  same  posi- 
tion as  an  insurer  of  property,  and  is  liable  for  every  loss  or  damage  to  it  while  in 
his  custody,  no  matter  by  what  cause,  unless  it  were  by  "Acts  of  God,"  such  as 
storms  and  floods,  or  the  public  enemy.  Public  enemies  means  persons  who  owe 
allegiance  to  a  country  that  is  at  war  with  ours,  and  not  highway  robbers  and 
burglars.  Even  his  entire  faultlessness  does  not  excuse  him.  Thus,  he  is  liable 
for  accidental  fire  or  robbery.  His  liability  continues  until  delivery,  which  must 
be  wdthin  a  reasonable  time  after  the  goods  reach  their  destination.  Delivery 
must  be  to  the  right  person,  and  if  not  so  delivered  the  common  carrier  is  liable, 
even  though  the  consignee's  address  was  erroneously  given.  If  the  consignee 
refuse  to  take  the  goods,  the  carrier  immediately  notifies  the  consignor  to  that 
effect,  and  asks  for  instructions  as  to  w^hat  disposal  to  make  of  them. 

769.  Liability  Limited  by  Notice. — It  is  now  well  settled  that  a  common  car- 
rier may  limit  his  liability  by  express  agreement  as  insurer  of  the  property 
intrusted  to  him.  But  when  the  notices  are  given  by  advertisements  in  the 
newspapers,  by  the  posting  up  of  placards  or  printing  them  on  the  back  of  a 
bill  of  lading,  they  are  generally  regarded  as  insufficient.  It  is  generally  held, 
however,  that  the  shipper,  by  accepting  a  bill  of  lading,  makes  the  conditions 
printed  on  its  face  a  part  of  the  contract,  and  is  bound  thereby. 

770.  Cannot  Limit  Liability  for  Negligence. — The  courts  construe  these  con- 
tracts as  only  exonerating  the  carrier  from  liability  from  loss  or  damage  not 
caused  by  his  own  fault,  for  if  he  be  guilty  of  misconduct  or  gross  negligence,  he  is 
chargeable  with  the  loss  occasioned  thereby,  and  the  contract  will  not  permit  him 
to  escape  his  responsibility.  Therefore,  a  common  carrier  cannot  by  any  means 
exonerate  himself  from  liability  for  loss  caused  by  negligence  of  his  own  or  of  his 
servants. 


771.  Duty  to  State  Value  of  Goods. — The  bailor  is  not  bound  to  state  the 
value  of  goods  unless  inquiry  be  made;  then  it  must  be  given.  Railroad  com- 
panies usually  limit  their  liability  for  the  loss  of  trunks  and  parcels  to  SIOO.  And 
a  provision  that  a  carrier  will  not  be  liable  beyond  a  certain  amount,  unless  the 
true  value  be  disclosed,  is  enforceable.  If  there  be  any  fraud  or  unfair  conceal- 
ment whereby  his  risk  is  increased  or  his  vigilance  lessened  it  will  exempt  the 
carrier  from  responsibility. 

772.  Connecting   Carriers. — Where   goods   arc   dplivered    to    a   carrier   and 


COMMON  CARRIER.  175 

raarked  for  a  destination  beyond  his  own  line,  without  any  direction  as  to  their 
delivery,  he  is  bound  only  to  deliver  them  at  the  end  of  his  line.  Neither  is  he 
bound  to  receive  and  carry  the  goods  beyond  his  line;  but  if  he  do  agree  to  do  so, 
the  other  carriers  are  his  agents,  and  he  is  alike  responsible  for  loss  or  damage  on 
their  lines  as  well  as  his  own. 

773.  Carriers  of  Passengers. — Common  carriers  of  passengers  are  not  per- 
mitted to  discriminate  against  a  particular  person,  class  or  race.  They  must 
carry  all  persons  who  offer  their  tickets  for  passage,  unless  they  be  afflicted  with 
some  contagious  disease,  or  otherwise  be  in  a  condition  unfit  for  transportation. 
The  carriers  of  passengers  are  not  held  to  as  strict  an  accountability  as  carriers  of 
merchandise.  They  are,  however,  liable  for  any  injury  to  passengers  caused  by 
their  own  or  their  servants'  neglect.  Common  carriers  have,  however,  a  right  to 
adopt  rules  and  regulations  for  the  carriage  of  passengers,  and  should  they  violate 
them  it  is  at  their  own  risk.  Railroad  companies,  having  invited  the  public  to 
take  passage  on  their  cars,  owe  protection  to  passengers  from  insults  and  indig- 
nities on  the  part  of  others.  The  conductor  of  a  passenger  train  violates  the 
train  dispatcher's  orders,  which  causes  a  collision.  Notwithstanding  the  act  of 
the  conductor  was  willfull  on  his  part,  the  railroad  company  is  liable  for  any 
damage  or  loss  of  life. 


CASES. 

(Give  reasons  for  answers.) 

1.  A  and  B  were  farmers.  A  allowed  B  to  store  his  farming  implements  in  his  barn,  which, 
with  all  its  contents,  was  burned.  The  fire  was  caused  by  A's  throwing  a  lighted  match  on  the 
barn  floor,  which  immediately  ignited.     What  remedies,  if  any,  has  B?'" 

2.  A  doctor  who  gratuitously  rendered  surgical  aid  to  parties  who  had  been  injurec'  in  a 
wreck  was  sued  for  malpractice.     What  is  his  liability?'"* 

3.  A  left  a  pair  of  shoes  mth  B  to  have  repaired.  They  were  stolen  from  B's  shop.  Who 
must  bear  the  loss?"^-  "' 

4.  A  hired  a  dress  suit  of  B.  A  was  caught  in  the  rain  and  the  suit  ruined.  Who  must 
bear  the  loss?'*' 

5.  B  shipped  her  piano  to  Denver,  Col.,  over  the  B.  &  O.  R.  R.  It  went  through  the  hands 
of  three  different  transportation  companies.  When  delivered  the  piano  was  much  injured,  due 
to  rough  handling.     Who  is  liable  for  the  damages?'*'-  "^ 

6.  A  hired  B's  buggy  to  drive  to  a  certain  city.  While  driving  at  a  rapid  pace  he  ran  into 
a  rut  and  broke  the  axle.     Who  is  responsible?'""-  '"" 

7.  D  borrowed  $175  of  B,  and  gave  his  diamond  ring  as  security.  What  procedure  must 
B  take  to  make  good  his  claim  out  of  the  pledge?'^* 

8.  A  gives  his  watch  to  B  to  keep  for  two  weeks.  B  makes  no  charge  for  this  service.  B 
put  A's  watch  in  the  bureau  drawer,  where  he  kept  other  valuable  jewelry  of  his  own.  The  watch 
was  stolen.     Who  must  bear  the  loss?'*' 

9.  A  sold  his  household  goods  to  B,  and  represented  that  the  storage  on  them  was  paid. 


1 70  COMMON  CARRIER. 

The  storage,  in  fact,  was  not  paid,  and  the  warehouseman  refused  to  let  B  have  the  goods  until 
he  paid  the  storage.     What  are  B's  rights  and  liabilities?'" 

10.  A  merchant  lost  a  large  shipment  of  perishable  fruit  because  of  the  failure  of  the  railroad 
company  to  furnish  him  with  cars  by  which  he  might  ship  the  fruit  to  another  city  where  there 
was  a  demand  for  it.  The  railroad  company  claimed  that  it  was  impossible  to  secure  more  cars. 
The  merchant  sued  the  company  for  liis  loss.     Can  he  succeed?"" 

11.  A  hired  B's  horse  to  lie  used  in  plowing  a  field.  The  horse  died  from  unknown  causes. 
Is  A  lialile  to  B  for  the  value  of  the  horse?"" 

12.  In  case  No  11,  had  A  used  the  horse  to  drive  to  a  certain  city,  would  his  responsibility 
be  the  same?"' 

GENERAL  REVIEW  QUESTIONS. 

1.  Define  Bailment.  2.  Bailments  are  divided  into  how  many  classes?  3.  What  is  meant 
by  a  Deposit?  4.  Define  Bailment  by  Mandate.  5.  What  is  the  liability  of  the  bailee  in  Deposit 
and  Mandate?  6.  If  the  bailee  enter  upon  a  performance  of  the  bailment,  is  he  required  to  finish 
it  or  pay  damages?  7.  What  is  a  transaction  called  when  property  is  delivered  by  one  person  to 
another,  to  be  used  by  him  for  his  own  personal  benefit?  8.  In  such  a  case,  what  is  the  liability 
of  the  bailee?  9.  How  must  the  thing  borrowed  be  used  by  the  bailee?  10.  What  is  meant  by 
a  Pledge?  11.  What  may  be  pledged?  12.  What  is  the  duty  of  the  pledgee?  13.  May  he  use 
the  property?  14.  What  are  the  three  remedies  which  the  pledgee  has  for  realizing  on  the  pledge? 
1.5.  What  is  meant  by  Bailment  for  Hire?  16.  Define  Hire  of  Things.  17.  What  is  the  hability 
of  the  bailee  in  this  class  of  transactions?  18.  What  is  meant  by  Hire  of  Services?  19.  What 
is  the  duty  of  the  workman  or  l)ailee?  20.  What  remedy  has  the  workman  to  enforce  payment 
for  his  services?  21.  What  is  Hire  of  Custody?  22.  Who  are  Common  Carriers?  23.  What  are 
the  General  duties  and  liabilities  of  a  Common  Carrier  of  merchandise?  24.  Can  Common  Car- 
riers by  agreement  limit  their  liability  for  damages  caused  by  their  own  negligence?  25.  Is  a 
Common  Carrier  obliged  to  deliver  goods  beyond  his  own  line  of  transportation?  26.  Is  a  Com- 
mon Carrier  liable  for  damages  to  the  goods  caused  by  another  company  to  whom  the  goods  were 
delivered  for  transportation? 


APPENDIX-STATE  LAWS. 

CORRECTED  JANUARY,  1912. 

Statutory  Provisions.  Rights  and  liabilities  arising  out  of  commercial  transactions  are, 
in  the  absence  of  statute,  regulated  by  common  law;  but  statute  law  has,  in  modern  times, 
greatly  modified  many  of  the  common  law  rights  and  liabilities.  While  the  general  provisions 
of  the  statutes  are  similar  iamany  of  the  states,  in  others  they  differ  widely.  Therefore,  the 
purpose  of  this  Appendix  is  to  set  forth  in  a  brief  and  concise  form  the  substance  of  the  stat- 
utes. These  special  provisions,  taken  from  the  statute  books  of  the  various  states,  may  be 
classified  under  the  following  defined  terms: 

Statute  of  Limitations.  By  the  rule  of  the  common  law,  one  who  had  legal  grounds  of  com- 
plaint against  another  might  suit  his  own  convenience  as  to  when  he  would  call  upon  the  latter 
to  answer.  But  this  rule  proved  to  be  productive  of  very  great  inconvenience  and,  not  infre- 
quently, of  great  injustice.  The  states  have,  therefore,  regulated  by  statute  the  time  within 
which  an  action  or  suit  at  law  may  be  instituted.  The  periods  of  limitation  must  be  computed 
from  the  time  the  right  to  sue  accrues.  The  length  of  the  periods  varies  according  to  the  nature 
of  the  action  or  claim.  For  example :  in  New  York  an  action  on  contract  must  be  begun  within 
six  years;  an  action  to  recover  damages  for  a  personal  injury  resulting  from  negligence,  within 
three  years;  libel,  slander,  assault,  etc.,  two  years;  and  still  other  actions  must  be  commenced 
within  one  year.  If  the  action  is  not  begun  within  the  period  prescribed  by  law,  the  claim  is 
said  to  be  "outlawed."  A  statute  defining  the  time  within  which  an  action  must  be  commenced 
is  known  as  a  "statute  of  limitation." 

Stay  of  Execution.  After  a  j  udgment  is  rendered  against  a  defendant,  who  is  then  known  as 
a  judgment  debtor,  the  judgment  creditor  may  proceed  to  have  the  property  of  the  judgment 
debtor  sold  to  satisfy  the  judgment.  In  some  states  this  procedure  may  be  begun  at  once;  in 
others,  by  giving  a  suitable  bond,  the  debtor  may  secure  a  delay  or  postponement  of  the  sale  of 
his  property.     This  is  known  as  a  "stay  of  execution." 

Exemptions.  While  the  enforcement  of  the  creditor's  judgment  is  by  sale  of  the  property 
of  the  judgment  debtor,  yet  the  law  wisely  provides  that  the  debtor  may  retain  a  portion  of  his 
property  free  from  execution.  This  right  is  known  as  "exemption."  The  common  law  allowed 
the  debtor  only  the  necessary  weai'ing  apparel.  It  was  once  held  in  an  old  English  case  that, 
if  the  defendant  had  two  gowns,  the  sheriff  might  sell  one  of  them.  But  in  modern  times  a 
considerable  amount  of  property,  both  real  and  personal,  is  exempted  from  execution  (sale  by 
the  sheriff)  by  the  statutes  of  the  several  states. 

If  the  debtor  is  without  property,  the  creditor  may  attach  money  due  the  defendant  in  the 
hands  of  a  third  party,  i.e. ,  attaching  the  salary  of  defendant.  This  process  is  called  ' '  garnish- 
ment." In  case  of  attaching  salary,  only  a  certain  portion,  or  the  excess  over  a  certain  amount 
can  be  garnisheed.     This  is  regulated  entirely  by  statute. 

Negotiable  Instruments  Law.  (See  Par.  298,  p.  44.)  This  is  a  statute  making  the  law 
applicable  to  negotiable  paper  uniform  in  all  states  in  which  it  has  been  adopted.  Up  to  Janu- 
ary 1,  1907,  a  majority  of  states  have  adopted  it.  The  act  in  no  way  controls  the  law  relating 
to  non-negotiable  paper.  It  sets  at  rest  many  controverted  questions.  It  declares  that  addi- 
tional stipulations  relating  to  attorney  and  collection  fees,  exemptions,  etc.,  shall  not  destroy 
the  negotiable  qualities  of  a  commercial  instrument  otherwise  negotiable.  Further,  that  an 
antecedent  debt  shall  be  a  sufficient  consideration  to  constitute  one  a  holder  in  due  (regular) 
course;  that  a  material  alteration  will  not  discharge  the  maker  or  acceptor,  but  that,  as  to  a 
holder  in  due  course,  he  shall  be  liable  according  to  the  original  tenor  of  the  instrument;  that 
nondelivery  by  the  maker  or  acceptor  of  a  completed  negotiable  instrument  is  not  a  good 
defense,  as  against  a  holder  in  due  course;  that  an  oral  acceptance  is  invalid;  that  a  seal  shall 
not  affect  the  negotiability  of  the  instrument,  and  that  the  obligor  no  longer  pays  an  instru- 
ment conditionally  indorsed  at  his  peril.  These  are  a  few  of  the  more  important  questions  that 
are  settled  by  the  act. 

Statute  of  Frauds.  This  is  an  old  English  statute  requiring  certain  contracts  to  be  evi- 
denced by  some  written  memorandum.  Its  essential  provisions  have  been  adopted  in  most  of 
the  states  The  part  of  the  statute  relating  to  the  sale  of  goods,  wares  or  merchandise  has 
received  greater  modification  than  any  of  the  other  provisions.     The  English  statute  provided 

177 


17S  APPENDIX. 

that  if  llip  sale  amounted  to  ten  pounds  sterling  or  more,  the  contract  could  not  be  enforced 
unless  there  was  a  part  delivery  and  acceptance,  or  part  payment  or  something  given  in  earn- 
est to  bind  the  bargain,  or  unless  some  note  or  memorandum  were  made  and  signed  by  the 
party  to  be  charged.  The  ten  pounds  sterling  represents  about  $48.86  in  legal  tender  of  the 
United  States.  The  majority  of  the  states  have  set  the  amount  at  $50;  others,  at  any  value, 
and  in  some  few  states,  this  part  of  the  statute  has  never  been  enforced. 

Interest.  This  term  represents  money  paid  for  the  use  of  money.  The  rate  is  fixed'  either 
by  law  or  by  contract.  The  legal  rate  will  prevail  in  the  absence  of  express  stipulation.  Some 
states  allow  by  contract  a  rate  of  interest  in  excess  of  that  established  by  law;  other  states  do 
not.  When  the  rate  of  interest  agreed  upon  is  in  excess  of  the  legal  or  contract  rate,  it  is  said 
to  be  usurious,  and  the  effect  of  a  usurious  rate  upon  the  contract  varies  in  the  different  states, 
as  shown  under  this  head  in  the  laws  of  the  states. 

Rights  of  Married  Women.  Under  this  head  we  shall  give  the  statutory  regulations  as  to 
the  rights  of  married  women.  At  common  law  a  married  woman  had  no  contractual  capacity. 
She  could  not  bind  herself  by  contract  in  any  form,  even  for  necessaries,  except  when  living 
apart  from  her  husband.  Her  personal  property  was  vested  in  her  husband,  and  he  could  dis- 
pose of  it  as  if  he  had  acquired  it.  This  arose  from  the  principle  that  they  were  considered  as 
one  person  in  law.  These  common  law  disabilities  arising  out  of  coverture  have  been  greatly 
modified  by  statute. 

Chattel  Mortgages.  A  chattel  mortgage  is  a  conditional  sale  of  a  chattel  as  security  of  a 
debt  or  the  performance  of  some  other  obligation.  Independently  of  statutes,  a  delivery  is 
necessary  to  the  validity  of  a  chattel  mortgage,  as  against  creditors.  The  registration  stat- 
utes simply  provide  a  substitute  for  change  of  possession.  Between  the  parties  a  change  of 
possession  is  unnecessary.  If  there  is  a  change  of  possession,  registration  is  not  required. 
The  rights  of  parties  interested  in  the  mortgaged  property  are  regulated  almost  wholly  by 
statute,  and  are  quite  uniform  in  all  states. 

LAWS  OF  ALABAMA. 

Statute  of  Limitations.  Stated  or  Liquidated  Accou7it — 6  years;  open  account,  3  years 
from  date  of  last  item  or  from  time  when,  by  contract  or  usage,  the  account  is  due.  Commer- 
cial Paper — G  years;  if  under  seal,  10  years.  Judgments — Court  of  record,  20  j'ears;  justice  of 
peace,  6  years. 

Execution.  Judgments  in  court  of  record,  no  staj';  in  jiistice  of  peace  court,  stay  of  30  days 
if  amount  is  less  than  $20  and  CO  days  if  more  than  $20  by  giving  bond  to  plaintiff  in  double 
the  amount  of  the  judgment. 

Exemptions.  Personal  Property — SIOOO,  unless  waived  in  writing.  Homestead — Land 
with  the  improvements  not  exceeding  $2000  in  value ;  may  be  waived  by  separate  written  instru- 
ment. M'awes — Of  residents,  $25  per  month;  of  deceased  employee,  $100  in  favor  of  widow  or 
minor  child. 

Statute  of  Frauds.  Not  in  force  as  to  the  sale  of  goods,  wares  and  merchandise.  Other 
essential  features  have  been  adopted. 

InteiiEst.  Legal  rate  by  statute  8  per  cent;  by  contract  8  per  cent.  Usury  works  for- 
feiture of  the  interest. 

Negotiable  Instruments  Law.    Adopted  1909. 

Rights  of  Married  Women.  Same  as  if  a  femme  sole,  except  that  she  cannot  convey  or 
mortgage  her  realty  or  waive  homestead  rights  without  husband  joins  in.  She  cannot  become 
surety  for  her  husband.  Married  women  over  18  are  relieved  of  disabilities  of  minority.  Dower 
Rights — If  no  descendants  and  not  insolvent,  life  estate  in  one-half;  if  insolvent,  life 
estate  in  one-third;  if  she  has  separate,  value  of  same  is  to  be  deducted  from  dower.  Distrib- 
utive Share  of  Husband's  Personalty — If  no  children  she  takes  all;  if  but  one  child,  one-half. 
Her  share  may  be  affected  or  wholly  barred  by  her  statutory  separate  estate. 

Chattel  Mortgages.  Void  against  creditors  and  purchasers  \yithout  notice.  Must  be 
recorded  in  office  of  judge  of  probate  in  county  where  mortgagor  resides  and  in  county  where 
property  is  at  date  of  mortgage.  If  removed  before  mortgage  is  satisfied,  must  be  again 
recorded  in  county  to  which  property  is  removed. 

LAWS  OF  ARIZONA. 
Statute  OF  Limitations.     Accounts — 3  years.     Commercial  Paper — 4  years.     Judgments — 
4  years. 

Executions.     No  stay  is  granted. 


APPENDIX.  ]79 

Exemptions.  Personal  Property — S500.  Homestead — To  the  value  of  $2500.  Must  be 
recorded.     Wages. — Earnings  for  30  days  next  preceding  levy. 

Statute  of  Frauds.  All  contracts  for  the  sale  of  goods,  wares  and  merchandise  must  be 
in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  6  per  cent;  by  contract  not  exceeding  12  per  cent. 

Negotiable  Instruments  Law.    Adopted  1901. 

Rights  op  Married  Women.  Same  as  a  femme  sole  after  age  of  18.  Dower — If  children 
widow  gets  life  estate  in  one-third.  If  no  children  widow  gets  one-half  absolutely.  If  no 
children  and  no  surviving  father  or  mother  widow  gets  all.  Community  property  goes  to  sur- 
vivor unless  there  are  children,  when  one-half  goes  to  survivor.  Distributive  Share  of  Husband's 
Personality — If  there  be  children  widow  gets  one-third.     If  no  children  widow  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  county  recorder  where  property  is  situated  and  where  mortgagor  resides,  if  resident.  If 
property  is  removed  to  another  county  must  be  recorded  within  one  month. 

LAWS  OF  ARKANSAS. 

Statute  OF  Limitations.  Accoimts — 3  years.  Commercial  Paper — 5  years.  Judgments — 
10  years. 

Execution.     In  all  courts  a  stay  is  granted  for  6  months. 

Exemptions.  Personal  Property — Head  of  family,  $.500;  to  others,  S200.  Homestead — In 
country,  160  acres;  in  town,  one-fourth  acre;  in  each  case  not  to  exceed  $2,500  in  value.  Wages 
— For  60  days,  provided  same  added  to  personality  is  not  more  than  exemption  allowed. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $30  or 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  10  per  cent.  Usury  works  a 
forfeiture  of  contract-principal  and  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Same  as  femme  sole.  Dower  Rights — If  children,  life  inter- 
est in  one-third  realty,  and  one-third  personalty  absolute.  If  no  children  fee  of  one-half  of 
realty,  not  ancestral,  as  against  all  except  creditors  and  one-third  as  against  them.  Also 
one-half  of  personalty  absolute  as  against  all  except  creditors  and  one-third  as  against  them. 
If  ancestral  one-half  for  life  except  as  to  creditors  and  one-third  as  to  ihem.  Distributive  Share 
of  Husband's  Personalty — If  personal  estate  does  not  exceed  $300  widow  and  childi-en  get  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  and 
recorded  in  the  office  of  the  recorder  where  the  mortgagor  resides. 

LAWS  OF  CALIFORNIA. 

Statute  of  Limitations.  Accounts — 3  years.  Commercial  Paper — 4  years;  2  years  if 
executed  out  of  the  state.  Judgments — In  courts  of  record,  5  years;  in  justice  of  peace*courts, 
2  years. 

Execution.    30  days. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — Head  of  family,  $.5000; 
others,  $1000.  Declaration  must  be  recorded.  Can  be  abandoned  only  by  declaration  which 
must  be  recorded.  Wages — 30  days  if  necessary  for  the  support  of  resident  family.  Wages  of 
seamen,  $300. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $200  and 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  7  per  cent;  by  contract,  no  limit. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  May  become  sole  trader  by  judgment  of  superior  court  and 
is  limited  in  her  investments  to  $500.  She  has  absolute  control  of  her  separate  property. 
Doiver  Rights — Dower  has  been  abolished,  the  following  statutory  provision  being  substituted 
therefor:  One  cliild  surviving,  widow  gets  one-half  of  realty  and  personalty;  more  than  one 
child  surviving,  widow  gets  one-third  of  realty  and  personalty;  if  no  children,  father,  mother, 
brother  or  sister,  or  children  or  grandchildren  of  brother  or  sister,  widow  takes  all. 

Chattel  Mortgages.  Void  as  against  subsequent  parties  without  notice.  IMust  be 
recorded  where  mortgagor  resides  and  also  where  the  propert  j'  is  located ;  if  property  be  removed 
it  must  be  recorded  within  30  days. 


ISO  AFFENDIX. 

LAWS  OF  COLORADO. 

Statute  OF  Limitations.  Accounts — 6  years.  Commercial  Paper — Oy^ars.  Judgments — 
In  court  of  record,  20  years;  in  courts  not  of  record,  6  years. 

ExEci'TioN.  In  courts  of  record,  stay  for  a  reasonable  time  if  levy  be  on  personal  property; 
in  justice  of  peace  courts,  no  stay. 

Exemptions.  Personal  Property—Specified  articles.  Homestead — To  the  amount  of  $2000; 
must  be  recorded.     Wages — GO  per  cent  of  wages  due. 

Statute  of  Frax'ds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  $50  and 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  8  per  cent;  bj-  contract,  no  limit. 

Negotiable  Lnstruments  Law.    Adopted  in  1897. 

Rights  of  Mahrikd  Women.  May  become  a  sole  trader.  Can  convey  property  without 
consent  of  husband,  but  cannot  bequeath  more  than  one-half  of  it.  Dower  Rights — Dower  has 
been  abolished,  the  following  statutory  provision  being  substituted  therefor:  If  there  be 
children,  the  widow  gets  one-half  of  realty  and  personaltj'.     If  no  children,  widow  gets  all. 

Chattel  ]\Iortgage.s.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  the  count}'  clerk  where  property  is  located. 

LAWS  OF  CONNECTICUT. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years;  if  non-nego- 
tiable, 17  year.     Judgiyients — No  limit. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  SIOOO; 
must  be  recorded.     Wages — $2.5. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  6  per  cent;  by  contract,  no  limit  up  to  15  per  cent. 

Negotiable  Instruments  Law.    Adopted  in  1897. 

Rights  of  Married  Wo.men.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
third  realty.  Distributive  Share  of  Husband's  Personalty. — If  issue,  widow  gets  one-third ;  if  no 
issue  or  legal  representative  of  issue,  widow  gets  one-half  for  all  up  to  $2000  if  married  since 
1877. 

Chattel  Mortgages.  Valid  as  to  specified  articles  if  recorded  with  town  clerk  where 
property  is  located. 

LAWS   OF  DELAWARE. 

Statute  OF  Limitations.  Accounts — Sj-ears.  Commercial  Paper — 6  years.  Judgments — 
20  years. 

Executions.     Courts  of  record,  stay  of  G  months  is  grunted;  justice  of  peace  cowr^s, 9  months. 

ExE.MPTiONS.  Personal  Property — Specified  articles.  Homestead — None.  Wages — 50  per 
cent,  if  resident.     Married  women  and  infants  all. 

Statite  OF  P'rauds.  No  provision  as  to  the  sale  of  goods,  wares  and  merchandise.  Other 
essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  G  per  cent ;  by  contract ,  (i  per  cent.  Usury  makes  void 
the  contract.     ^Vny  one  may  sue  for  a  sum  equal  to  the  amount  loaned. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Can  own  property  the  same  as  a  femme  sole  and  contract  in 
respect  to  same  but  cannot  convey  without  husband's  consent  so  as  to  defeat  his  curtesy. 
(Rights  in  her  property.)  Dower — If  there  be  a  child,  widow  gets  one-third  for  life,  of  the  realty 
left  by  her  busband.  If  no  child  or  issue  of  child,  one-half  for  life.  If  no  child  or  kindred, 
widow  gets  life  estate  in  all.  Distributive  Share  of  Husband's  Personalty — If  there  be  children 
she  gets  one-tliird  absolutely ;  if  no  children  but  brothers  and  sisters,  one-half,  and  if  no  kindred, 
widow  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
within  10  daj'S  vn%h  the  reeordor  where  property  in  flitiiflt*>d.  lA^n  is  good  for  6  y»fi«i.  Then 
renewable  rverv  3  vears. 


APPENDIX.  lis  I 

LAWS  OF  FLORIDA. 

Statute  of  Limitations.  Accounts — 4  years.  Commercial  Paper — 5  years;  under  seal, 
20  years.     Judgynents — 20  years. 

Execution.     A  stay  may  be  granted  in  the  discretion  of  the  court. 

Exemptions.  Personal  Property — $1000  to  head  of  family  residing  in  the  state.  Home- 
stead— leO  acres  in  the  country  or  one-half  acre  in  the  city.     Wages — All  wages  are  exempt. 

Statute  of  Frauds  All  contracts  for  the  sale  of  goods,  wares  and  merchandise  must  be 
in  writing.     Other  es.sential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  8  per  cent;  by  contract,  10  per  cent.  Usury  works  a 
forfeiture  of  all  interest. 

Negotiable  Instruments  Law.    Adopted  in  1897. 

Rights  of  Married  Women.  She  has  full  trading  rights  by  license  granted  by  circuit 
court  judge.  Dower  Rights — Life  estate  in  one-third  realty.  Distributive  Share  of  Husband's 
Personalty — If  no  children  or  only  one  child,  widow  gets  one-half :  if  more  than  one  child,  widow 
gets  one-third. 

Chattel  Mortgages.  Invalid  if  not  recorded.  Must  be  recorded  in  the  office  of  the  clerk 
of  circuit  court  where  the  property  is  located. 

LAWS  OF  GEORGIA. 

Statute  OF  Limitations.  Accounts — 4  years.  Commercial  Paper — 6  years.  Judgments — 
7  years. 

Executions.  Courts  of  record,  stay  of  60  days  is  granted;  jasizce  of  peace  courts,  if  judg- 
ment be  under  $30,  40  days;  over  $30,  60  days. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — Realty  or  personalty 
or  both  to  the  value  of  $1600;  agricultural  land,  50  acres  and  5  acres  additional  for  each  child 
under  16  years,  with  improvements  not  to  exceed  $200,  and  in  city  not  to  exceed  $500.  Wages — • 
All  laborers'  wages. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  and 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  7  per  cent;  by  contract,  8  per  cent.  C/swr?/ works  a  for- 
feiture of  excess  interest. 

Negotiable  Instruments  Law.    Has  not  been  adopted. 

Rights  of  Married  Women.  Can  contract  same  as  a  femme  sole  except  that  she  cannot 
become  surety  for  another  or  bind  herself  to  pay  her  husband's  debts.  Dower — Life  interest  in 
one-third  realty.  If  no  lineal  descendants,  wife  is  sole  heir.  Distributive  Share  of  Husband's 
Personalty — If  there  be  children,  widow  gets  a  child's  part,  unless  there  are  more  than  5  when 
she  gets  one-fifth.     If  no  lineal  descendants,  she  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  clerk  of  superior  court  in  county  where  mortgagor  resides  and  also  where  property  is 
located.  If  on  property  outside  of  state  and  property  is  afterwards  brought  into  state,  must 
be  recorded  within  6  months. 

LAWS  OF  IDAHO. 

Statute  of  Limitations.  Accounts — 4  years.  Commercial  Paper — 5  years.  Judgments — 
6  years. 

Executions.     No  provision  for  a  stay  of  execution. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — Head  of  family,  $5000; 
any  other  person,  $1000.     Wages — For  30  days  if  necessary  for  the  support  of  family. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  .$200  or 
over  must  be  in  writing.    Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  7  per  cent ;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  10  per  cent  of  the  principal. 

Negotiable  Instruments  Law.    Adopted  in  1903. 

Rights  of  Married  Women.  Dower  has  6een  abolished.  Same  as  femme  sole  with  her 
separate  property. 

Chattel  Mortgages.  Void  as  against  subsequent  parties  without  notice.  Must  be  filed 
for  record  with  recorder  of  county  where  property  is  located.  If  goods  are  removed  into  another 
county  it  must  be  filed  '"n  said  county  mthin  10  da.vf;. 


182  APPENDIX. 

LAWS  OF   ILLINOIS. 

Statute  of  Limitations.  Accounts — 5  years.  Commercial  Paper — 10  years.  Judgments 
— Courts  of  record,  20  years;  justice  of  peace,  10  years. 

Executions.     No  provision  for  a  stay  of  execution. 

E.XEMPTioNs.  Personal  Propcrty—Ucud  of  family,  $400;  others  SIOO.  Homestead — To  the 
value  of  $1000.     Wages — $15  per  week  to  heads  of  families. 

Statx^te  of  Frauds.  Not  in  force  as  to  the  sale  of  goods,  wares  and  merchandise.  Other 
essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  5  per  cent;  by  contract,  7  per  cent,  (/surf/ works  a  for- 
feiture of  entire  interest. 

NEt;oTiAHi.E  Ln'stri'ments  Law.     In  force  only  as  to  paper  executed  after  July  1,  1907. 

Rights  of  Married  Women.  Can  engage  in  business  the  same  as  a  femme  sole,  except 
that  she  cannot  enter  into  partnership  without  husband's  consent,  unless  he  has  deserted  her, 
is  insane  or  in  the  penitentiary.  Expenses  of  family  charged  upon  proi)erty  of  bf)th.  Dower — 
Life  interest  in  one-third  realty.  If  no  children,  one-half  absolutely.  If  no  kindred,  all  abso- 
lutelj'.  Distribrilive  Share  of  Husbayid's  Personalty — If  children,  she  gets  one-third  absolutely 
If  no  children,  she  gets  all  absolutely. 

Chattel  AIortgages.  Invalid  as  to  third  parties  unless  possession  is  given  to  mortgagee 
or  instrument  provides  that  mortgagor  shall  retain  possession,  and  it  is  acknowledged  and 
recorded  with  recorder  of  the  county  where  mortgagor  resides  at  time  mortgage  is  executed,  or 
if  mortgagor  is  a  nonresidentit  must  be  recorded  in  county  where  property  is  situated.  Is  good 
until  debt  is  paid  if  less  than  3  years.  IVIay  be  extended  for  a  period  of  1  j'ear  after  debt  is 
due  by  filing  affidavit  within  30  days  prior  to  maturity  of  debt,  stating  mortgagee's  interest 
in  property  and  the  balance  due  upon  the  debt. 

LAWS  OF  INDIANA. 

Statute  of  Limitations  Accounts — 6  years  from  date  of  each  item.  Commercial  Paper — 
10  years.     J udgments — 20  years,  but  no  lien  after  10  j'ears. 

E.xecutions.  Courts  of  record — Not  more  than  $6,  30  days;  under  $12,  60  daj's;  under  $20, 
90  days;  under  $40,  120  days;  under  $100,  150  days,  more  than  $100,  LSO  days.  Justice  of  the 
peace  courts — Not  over  $6,  30  days;  under  $12,  60  days;  under  $20,  90  days;  under  $40,  120  days; 
under  $75,  150  daj-s;  over  $75,  180  days. 

Exemptions.  Personal  Property  (Realty) — Every  resident  householder  is  entitled  to  $600 
of  either  or  both  as  he  may  elect.  Married  women  entitled  to  same  if  she  is  a  resident  whether 
household  or  not.     Wages — Of  householder  not  exceeding  $25  at  one  time. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or 
over  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  8  per  cent.  Usury  works  a  for- 
feiture of  interest  above  legal  rate  of  6  per  cent. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Disabilities  have  been  removed,  except  that  she  cannot 
become  surety  for  any  body  and  cannot  convey  or  mortgage  her  real  property  without  husband 
joining  in  conveyance.  Dower  has  been  abolished,  the  following  stautory  provision  being 
substituted  therefor:  Widow  gets  one-third  in  fee  of  all  realt}%  free  from  claims  of  creditors, 
unless  it  exceeds  $10,000,  when  she  gets  one-fourth,  and  if  it  exceeds  $20,000  she  gets  one-fifth. 
If  one  child  only,  widow  gets  one-half  realty.  Distril>utive  Share  of  Husl)and's  Personalty — If 
one  child,  she  gets  one-half.  If  more  than  one  child,  she  gets  one-third  unless  she  be  his  second 
wife.     This  right  cannot  be  defeated  by  husband's  will. 

Chattel  AIortgages.  Invalid  as  to  third  parties  unless  recorded  in  the  office  of  the 
recorder  of  the  county  where  mortgagor  resides  within  10  days.  If  nonresident,  it  must  be 
recorded  in  county  where  property  is  situated. 

LAWS  OF   INDIAN  TERRITORY. 
See  Laws  of  Oklahoma, 


APPENDIX.  183 

LAWS  OF  IOWA. 

Statute  OF  Limitations.  Accounts — 5  years.  Commercial  Paper — 10  years.  Jtulyinoilf! — 
In  courts  of  record,  20  years;  in  courts  not  of  record,  10  years. 

Execution.  If  judgment  be  for  not  more  than  $100,  three  months'  stay  is  granted;  if  for 
more  than  $100,  six  months'  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  city,  one-half  acre; 
if  in  country,  40  acres.     Wages — Earnings  for  90  days  next  preceding  the  levy. 

Statute  of  Frauds.  All  contracts  for  the  sale  of  goods,  wares  and  merchandise  must  be 
in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  8  per  cent.  Usury  works  a  for- 
feiture of  interest  and  costs  of  suit. 

Negotiable  Instruments  Law.     Adopted  in  1902. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
third  realty.  Distributive  Share  of  Husband's  Personalty — If  there  be  no  issue,  widow  gets  one- 
half. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  the  county  recorder  where  the  mortgagor  resides. 

LAWS  OF  KANSAS. 

Statute  of  Limitations.  Accounts — 3  years.  Commercial  Paper— 5  years.  Juxlgments — 
May  be  kept  alive  indefinitely  by  issuing  execution  every  5  years. 

Execution.  In  courts  of  record,  no  stay.  In  justice  of  peace  courts,  a  stay  is  granted  as  fol- 
lows; If  amount  be  $20  or  under,  30  days;  over  $20  and  not  over  $50,  60  days;  over  $50  and  not 
over  $100,  90  days;  over  $100,  120  days. 

Exemptions.  Personal  Property — Specified  articles.  Household  furniture  and  wearing 
apparel  not  to  exceed  $500.  Homestead — 1  acre  in  city  or  town;  in  country,  160  acres  farming 
lands  together  with  all  improvements  thereon.     Wages — For  3  months. 

Statute  of  Frauds.  Not  in  force  as  to  sales  of  goods,  wares,  and  merchandise  when 
contract  is  to  be  performed  within  a  year. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  10  per  cent.  Usury  works  a  for- 
feiture of  double  amount  of  excess  interest. 

Negotiable  Instruments  Law.     Adopted  in  1905. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Dower  has  been 
abolished,  but  wife  is  entitled  to  one-half  realty  of  her  husband.  Distributive  Share  oj  Husband's 
Personalty — ^Widow  is  entitled  to  one-half. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
the  register  of  deeds  in  county  where  the  property  is  located . 

LAWS  OF  KENTUCKY. 

Statute  of  Limitations.  Accounts — 5  years.  Commercial  Paper — 5  years.  Judgments — 
15  years. 

Execution.     A  stay  of  3  months  is  granted  in  all  courts. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $1000. 
Wages— %oQ. 

Statute  op  Frauds.     Not  in  force. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  excess  interest. 

Negotiable  Instruments  Law.     Adopted  in  1904. 

Rights  of  Married  Women.  She  has  full  trading  rights,  except  that  she  cannot  sell  or 
mortgage  her  real  estate  unless  her  husband  joins.  Doiver  Rights — Life  estate  in  one-third  realty. 
Distributive  Share  of  Husband's  Personalty — Widow  is  entitled  to  one-half. 

Chattel  Mortgages.  Void  as  against  subsequent  parties  without  notice.  Must  be  recorded 
in  the  coun'y  of  the  mortgagor's  residence. 

LAWS  OF  LOUISIANA. 
Statute  of  Limitations.     Accounts — 3  years.     Commercial  Paper — 5  years.     Judgments — 
10  years  unless  revived  before  expiration  of  said  period,  when  they  are  good  for  10  years  more. 
May  be  revived  as  often  as  person  wishes. 


184  APPENDIX. 

Executions.     Xo  provision  for  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — 160  acres,  not  to  e.xceed 
$2000  in  value.  Head  of  family  only.  Written  waiver  only.  Wages — All  laborers' wages  and 
officers'  salaries. 

St.\tute  of  P'rauds.  Sales  of  goods,  wares  and  merchandise  for  more  than  $500  must  be  in 
writing;  antl  must  be  proved  by  one  credible  witness  and  other  corroborative  circumstances.  Qther 
essential  features  have  been  adopted,  except  that  a  verbal  sale  of  land  is  good  as  against  vendor 
as  well  as  against  vendee  who  confesses  it  when  interrogated  on  oath,  provided  actual  delivery  has 
been  maile. 

Interest.  Legal  rat€  by  statute,  5  per  cent;  by  contract,  8  per  cent.  Usury  works  a  for- 
feiture of  whole  interest. 

Negotiable  Instruments  Law.     Adopted  in  1904. 

Rights  of  Married  Women.  Has  the  right  to  become  a  public  merchant  and  as  such  has 
free  power  to  contract  in  respect  to  her  trade.  Cannot  convey  or  incumber  her  separate  property 
without  consent  of  husband  in  writing.  Dower — The  following  provision  regulates  her  property 
rights.  .\11  property  is  conununity  property  unless  otherwise  expressly  stipulated.  Upon  hus- 
band's death  intestate  leaving  no  ascendants  or  descendants,  his  snare  goes  to  widow  for  life.  If 
issue,  she  is  entitled  to  use  during  widowhood  only:  if  no  lawful  descendants,  nor  ascendants,  nor 
collateral  relations  she  is  entitled  to  husband's  share  to  exclusion  of  any  natural  child,  duly 
acknowledged. 

Chattel  Mortgages.     Unknown  in  this  state. 

LAWS  OF  MAINE. 

Statute  op  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years,  unless  wit- 
nessed, when  it  is  20  years.     Jmlgments — 20  years. 

Executions.  No  provision  for  stay  of  execution  unless  taken  by  default  against  nonresi- 
dent defendant,  in  which  case  a  stay  for  1  year  may  be  had  unless  plaintiff  gives  bond  in  double 
amount. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — $500  to  any  householder 
if  properly  recorded.  Lasts  during  life  of  wddow  and  infancy  of  children.  Wages— One  month's 
wages  not  exceeding  $20  except  for  necessaries. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $300  or 
more  must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  no  limit  except  in  certain  specified 
cases.     Usury — No  penalty  except  in  specified  case  when  excess  interest  is  forfeited. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  has  been  abolished,  the  follow- 
ing statutory  provision  being  substituted  therefor:  If  there  be  children  widow  gets  one-third  of 
both  real  and  personal  property.  If  there  be  no  children,  widow  gets  one-half  of  both  real  and 
personal  property:  if  there  be  no  kindred,  widow  gets  all  of  both  real  and  personal  property. 

Ch.vttel  Mortgages.  Void  as  to  subsequent  parties  unless  recorded.  Must  be  recorded 
with  tlie  town  clerk  in  county  where  mortgagor  resides,  unless  nonresident  when  it  must  be  filed 
and  recorded  in  county  where  property  is  situated. 

LAWS  OF  MARYLAND. 

Statute  of  Limitations.  Accomits — 3  years.  Commercial  Paper — 3  years,  unless  under 
seal,  when  it  is  12  years.     Judgments — 12  years. 

Executions.  All  judgments  may  be  superseded  for  6  months  by  confessing  judgment  and 
giving  security  within  2  months  after  rendition  of  judgment. 

Exemptions.  Personal  Property — Residents  entitled  to  $100  and  certain  specified  articles, 
except  on  judgments  for  breach  of  promise  to  marry  or  seduction.  Homestead — No  provision. 
Wages — $100;  applies  to  both  resident  and  nonresidents  and  attachment  only  binds  wages  due 
when  laid. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  excess  interest. 

Negotiable  Instruments  Law.     Adopted  1898. 

Rights  of  Married  Women.  May  contract  same  as  a  femme  sole.  Cannot  dispose  of  prop- 
erty so  as  to  defeat  husband's  interest  without  husband  joining  in  deed.     Disability  of  infancy 


APPENDIX.  185 

does  not  apply  (o  inanietl  females  over  IS  years.  Dower — Life  interest  in  one-third  realty.  If 
no  heirs  she  gets  all  absolutely.  Distributive  Share  of  Husband's  Personalty—She  gets  one-third 
absolutely.  If  children,  she  gets  an  additional  allowance  of  $150.  If  no  children,  allowance  is 
$75  only. 

Chattel  Mortgages.  Invalid  if  not  recorded  with  clerk  of  circuit  court  within  20  days. 
Priority  in  order  of  recording. 

LAWS  OF  MASSACHUSETTS. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  If  attested, 
action  may  be  brought  by  original  payee  or  his  executor  or  administrator  within  20  years.  Judg- 
ments— 20  years. 

Executions.     No  provision  for  stay. 

Exemptions.  Personal  Property — Specified  articles.  Applies  to  both  married  and  single 
persons.  Homestead — To  a  householder  with  family,  if  used  as  a  residence,  to  the  value  of  $800. 
Must  be  recorded  and  continues  for  the  benefit  of  widow  and  infant  children.  Wages — Of  labor- 
ers to  the  extent  of  $20  unless  for  necessaries  when  it  is  $10. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  no  limit  if  in  writing.  Usury — 
No  penalty. 

Negotiable  Instruments  Law.     Adopted  1898. 

Rights  of  Married  Women.  May  engage  in  any  business  if  she  files  married  woman's  cer- 
tificate with  town  clerk.  Cannot  contract  with  husband.  Cannot  convey  so  as  to  defeat  hus- 
band's curtesy  unless  he  joins  in  conveyance.  Dower — Life  interest  in  one-third  realty.  If  there 
be  no  children,  $5000  and  one-half  remaining  realty.  If  no  kindred  she  gets  all.  Distributive 
Share  of  Husband's  Personalty — If  there  be  issue  she  gets  one-third.  If  no  issue,  she  gets  $5000 
and  one-half  of  remaining  personalty.  If  no  kindred  she  gets  all.  Also  certain  allowance  as 
necessaries. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
within  15  days  with  town  clerk  where  mortgagor  resides  and  transacts  business.  If  nonresident, 
it  must  be  recorded  where  property  is  situated.  If  a  record  in  two  different  places  is  required  and 
the  mortgage  is  recorded  in  one  within  15  days,  it  may  be  recorded  in  the  other  within  10  days 
after  first  record. 

LAWS  OF  MICHIGAN. 

Statute  of  Limitations.  Accounts- — 6  years.  Commercial  Paper — 6  years;  under  seal,  10 
years.     Judgments — Courts  of  record,  10  years;  justice  of  peace,  6  years. 

Executions.  Courts  of  record,  no  stay  is  granted;  justice  of  peace  courts,  a  stay  is  granted  as 
follows:     If  judgment  be  for  $50  and  under,  4  months;  over  $50,  6  months. 

Exemptions.  Personal  Property — $250  in  any  trade,  profession,  occupation  or  business, 
and  certain  specified  articles.  Homestead — 40  acres  in  country,  or  1  lot  in  city  or  town;  in  each 
case  not  to  exceed  $1500  in  value.  Wages — Householder,  80  per  cent  of  wages,  but  not  exceeding 
$30  nor  less  than  $8;  others,  40  per  cent,  but  not  exceeding  $15  nor  less  than  $4. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  5  per  cent;  by  contract,  7  per  cent.  Usury  works  a  for- 
feiture of  all  interest. 

Negotiable  Instruments  Law.     Adopted  in  1905. 

Rights  of  Married  Women.  Same  as  a  femme  sole,  except  that  she  cannot  become  surety 
for  her  husband  or  enter  into  partnership  with  him.  Dower — Life  estate  in  one-third  realty.  She 
may  avail  herself  of  the  following  statutory  provision  in  lieu  of  dower:  If  no  descendants,  she 
gets  one-half  absolutely.  If  no  descendants,  father,  mother,  brother  or  sister  or  children  of  brother 
or  sister,  she  gets  all.  Distributive  Share  of  Husband's  Personalty — Certain  allowance  and  one- 
third  of  surplus  if  children;  if  only  one  child,  one-half;  if  no  child  and  value  of  persinalty  does  not 
exceed  $3000  she  gets  all;  if  it  exceeds  $3000  she  gets  one-half  of  surplus.  If  no  children,  father, 
mother,  brother  or  sister  or  issue  of  brother  or  sister,  she  gets  all. 

Chattel  Mortgages.  Void  unless  filed  with  city  or  township  clerk  where  mortgagor  resides. 
If  nonresident  must  be  filed  where  property  is  located 

LAWS  OF  MINNESOTA. 
Statute  of  Limitations.     Accounts — 6  years.     Commercial  Paper — 6  years.     Judgmenia — 
10  years. 


186  APPENDIX. 

Executions.  Courts  of  record,  G  months'  stay  is  granted.  Justice  of  peace  courts — If  judg 
ment  be  for  $10,  1  month;  $1U  to  %2i>,  2  months;  $25  to  $50,  3  months;  over  $50,  6  months.  In 
each  of  tlie  courts  security  must  bo  given  witliin  10  days  after  rendering  judgment. 

Exemptions.  Personal  Property — Specified  articles.  Also  printing  presses  together  with 
stock  in  trade  not  exceeding  $2400.  Also  hfe  insurance  to  wife  or  child  not  exceeding  $10,000. 
Homestead — 80  acres  in  country,  one-half  acre  in  town  or  one-third  acre  in  city.  Wages — P'or 
30  days  not  exceeding  $25. 

Statute  OF  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Intere.st.  Legal  rate  by  statute,  6  per  cent;  by  contract,  1(J  per  cent.  Usury  works  a  for- 
feiture of  principal  and  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Can  engage  in  business  same  as  a  femme  sole.  Apparently 
she  cannot  convey  realty  without  husband  joins  in  deed.  Cannot  convey  to  husband.  Cannot 
mortgage  or  convey  her  homestead  without  husband  joining.  She  is  jointly  liable  for  necessaries. 
Dower — If  there  be  children,  she  gets  one-third  absolutely;  if  no  children,  she  gets  all.  Distribu- 
tive Share  of  Husband's  Personalty — Allowance  not  exceeding  $500  and  additional  allowance  for 
maintenance  during  settlement  of  estate.  If  there  be  children,  she  gets  one-third  of  the  residue; 
if  no  children  she  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
town  clerk  wliere  mortgagor  resides.  If  nonresident,  where  property  is  situated.  Must  be  two 
attesting  witnesses.     Good  for  6  years. 

LAWS  OF  MISSISSIPPI. 

Statute  of  Limit.^tions.  Accounts — 3  years.  Commercial  Paper — 6  years.  Judgments — 
7  years. 

Executions.  Courts  of  record,  no  stay  is  granted ;  justice  of  peace,  a  stay  is  granted  as  follows ; 
$50  and  under,  30  days;  over  $50,  60  days,  by  giving  bond  within  5  days  after  judgment. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — $3000,  in  iio  case  exceed- 
ing 160  acres  in  the  country.     Wages — $50  to  head  of  family. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contracb,  10  per  cent.  Usury  works  a  for- 
feiture of  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower — Has  been  abolished,  the  fol- 
lowing statutory  provision  being  substituted  therefor:  If  there  be  descendants,  widow  gets  a 
child's  share  of  realty  and  personalty  absolutely.  If  no  descendants,  she  gets  all  the  realty  and 
personalty  absolutely. 

Chattel  Mortgages.  Void  unless  recorded  with  the  chancery  clerk  in  county  where  prop- 
erty is  located.  If  removed  to  another  county  with  consent  of  mortgagee  he  must  record  mort- 
gage in  that  county  within  12  months. 

LAWS  OF  MISSOURI. 

St.\tute  OF  Limitations.  Accounts — 5  years.  Commercial  Paper — 10  years.  Judgments — 
10  years. 

Executions.     No  provision  for  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  country,  160  acres 
not  exceeding  in  value  the  sum  of  $1500.  In  towns  of  less  than  10,000,  5  acres,  not  exceeding 
$1500  in  value.  In  cities  of  10,000  to  40,000,  30  square  rods,  not  exceeding  1  per  cent  in  value. 
In  cities  of  40,000  and  upwards,  18  square  rods,  not  exceeding  $3000  in  value.  Wages — 90  per 
cent,  not  exceeding  together  with  other  personal  property  $300. 

St.\tute  of  Frauds.  Contracts  for  tlie  sale  of  goods,  wares  and  merchandise  for  $30  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  8  per  cent.  Usury  works  a  for- 
feiture of  excess  above  6  per  cent. 

Negotiable  Instruments  Law.    Adopted  in  1905;  amended  in  1909. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower — Life  interest  in  one-third 
realty.  If  no  descendants  she  gets  absolutely  all  realty  which  came  to  the  husband  in  right  of  the 
marriage,  not  subject  to  the  husband's  debts;  one-half  absolutely  of  all  realty  belonging  to  1ms- 


APPENDIX  18V 

band  at  time  of  his  death,  subject  to  payment  of  liis  debts.  Slie  may  elect  to  take  either  her 
dower  or  the  statutory  provision  when  no  descendants.  Distributive  Share  of  Husband's  Person- 
alty— If  descendants,  she  gets  a  child's  share  absohitely.  If  no  descendants,  she  shares  as  in 
realty.     (See  above,  under  Dower.) 

Chattel  Mortgages.  Invalid  urdess  filed  or  recorded  with  the  recorder  in  county  where 
mortgagor  lives.     If  nonresident  in  county  where  property  is  located. 

LAWS  OF  MONTANA. 

Statute  of  Limitations.  Accounts — 5  years.  Commercial  Paper — 8  years.  Jvdgmevts — 
Courts  of  record,  10  years;  justice  of  peace,  5  years. 

Executions.     No  provision  for  stay  of  execution. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — 160  acres  in  country,  oi- 
one-fourth  acre  in  town;  in  each  case  not  to  exceed  $2500  in  value.  Wages — For  30  chiys  tt)  head  of 
family  unless  for  necessaries  when  only  one-half  is  exempt. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $200  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  8  per  cent;  by  contract,  no  limit. 

Negotiable  Instruments  Law.     Adopted  in  1903. 

Rights  of  Married  Women.  May  become  a  sole  trader  by  judgment  of  the  district  court 
of  the  county  in  which  she  has  resided  for  6  months.  Dower — Life  estate  in  one-third  realty. 
If  no  descendants  she  may  elect  to  take  either  dower  or  the  following  statutory  provision,  one-half 
absolutely  after  payment  of  husband's  debts.  Distributive  Share  of  Husband's  Personalty — If 
one  child  or  issue  of  such,  she  gets  equal  share.  If  more  than  one  child,  she  gets  one-third.  If 
no  descendants,  one-half.     If  no  descendants,  father,  mother,  brother  or  sister,  she  gets  all. 

Chattel  Mortgages.  Void  unless  recorded  with  county  clerk  where  mortgagor  resides. 
If  nonresident  it  must  be  recorded  where  property  is  located.  Is  good  until  maturity  of  debt  and 
60  days  thereafter  with  provision  for  renewal. 

LAWS  OF  NEBRASKA. 

Statute  op  Limitations.  Accounts — 4  years.  Commercial  Paper — 5  years.  Judgments — 
May  be  kept  alive  indefinitely  by  issuing  execution  every  5  years. 

Execution.  In  courts  of  record  a  stay  of  execution  is  granted  as  follows:  If  amount  be 
$50  or  less,  3  months;  $50  to  $100,  6  months;  in  all  other  cases,  9  months.  In  justice  of  peace 
courts,  if  amount  be  $10  or  under,  60  days;  over  $10  to  $50,  90  days;  $50  to  $100,  6  months;  $100 
to  $200,  9  months. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — House  and  160  acres  in 
the  country,  or  house  and  2  lots  in  the  city;  in  each  case  value  must  not  exceed  $2000. 

Statute  of  Frauds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  7  per  cent;  by  contract,  10  per  cent.  Usury  works  for- 
feiture of  all  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  Same  asafemmesole.  DowerRights — Life  estate  in  one-third 
realty.  Distributive  Share  of  Husband's  Personalty — All  articles  of  household  furniture,  ornaments 
and  wearing  apparel  of  the  deceased,  and  all  property  and  articles  that  were  exempt  at  the  time 
of  his  death  and  other  personal  property  to  be  selected  by  her  not  to  exceed  $200.  She  then 
takes  a  child's  share  of  the  remainder.     If  there  be  no  issue  or  kindred,  widow  takes  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
county  clerk  where  mortgagor  resides,  unless  he  resides  out  of  the  state,  in  which  case  it  must  be 
filed  where  property  is  located. 

LAWS  OF  NEVADA. 

Statute  of  Limitations.  Accounts — 4  years.  Commercial  Paper — 6  years.  Jxulgments — 
6  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — Land  and  improvements 
not  exceeding  $5000in  value.     Wages — $50  earned  during  30  days  next  preceding  issvieof  process. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  under 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  7  per  cent;  by  contract,  no  limit. 

I»lEGOTiABLE  INSTRUMENTS  Law.     Has  not  been  adopted. 


188  APPENDIX. 

Rights  of  Married  Women.  She  may  become  a  sole  trader,  provided  she  gets  an  order  of 
the  court  and  records  the  same.  Dower  Rights — Dower  has  been  aoolished,  the  following  statu- 
tory provision  being  substituted  therefor:  The  widow  is  entitled  to  one-half  of  the  community 
property  (that  is,  property  acquired  by  the  spouses  during  marriage);  she  then  sliares  of  the  real 
and  personal  property  as  follows:  If  there  be  one  child  or  issue  of  one  child,  one-half;  if  more  than 
one  cliild  or  the  issue  of  one  or  more  children,  one-third;  if  no  child  or  issue  of  children,  one-half. 

Chattel  Mortgages.  Void  against  creditors  and  purchasers  without  notice.  Must  be 
recorded  with  recorder  where  property  is  located  and  where  mortgagor  resides. 

LAWS  OF  NEW  HAMPSHIRE. 

Statute  OF  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Jtidgments — 
20  years. 

l>XEcuTiON.     The  granting  of  a  stay  of  execution  is  in  the  discretion  of  the  court. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — Land  to  the  value  of 
$500.     Wages~$20. 

Statute  of  Frauds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  $33  or  under 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  three  times  the  excess  of  legal  interest. 

Negotiable  Instruments  Law.     Adopted  1910. 

Rights  of  Married  Women.  Same  as  a  femme  sole,  except  that  she  cannot  become  surety 
for  her  husband.  Dower  Rights — She  is  entitled  to  so  much  of  any  real  estate  as  will  produce  a 
yearly  income  equal  to  one-tiiird  of  the  yearly  income  thereof  at  the  death  of  her  husband.  Dis- 
tributive Share  of  Husband's  Personalty — If  issue  survives,  widow  gets  one-third;  if  no  issue  sur- 
vives, she  gets  one-half. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  town  clerk  where  mortgagor  resides. 

LAWS  OF  NEW  JERSEY. 

Statute  of  Limitations.     Accounts — (3  years.     Commercial  Paper — 6  years.     Judgments — 20 
years. 

Execution.  In  circuit  or  supreme  court,  no  stay;  in  district  and  justice  of  peace  courts,  a  stay 
of  execution  is  granted  as  follows:  If  amount  is  from  $5  to  $15,  1  month;  $15  to  $60,  3  months; 
more  than  $G0,  6  months. 

Exemptions.  Personal  Property — $200  and  wearing  apparel.  Homestead — To  the  value  of 
$1000;  must  be  advertised  and  recorded.     Wages — All. 

Statute  of  Frauds.  Contract  for  sale  of  goods,  wares,  or  merchandise  of  $30  and  upwards 
must  be  in  writing.     Other  essential  features  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a 
forfeiture  of  all  interest  and  costs. 

Negoti.a.ble  Instruments  Law.     Adopted  in  1902. 

Rights  of  Married  Women.  She  may  become  a  sole  trader,  but  cannot  become  an  accom- 
modation indorser,  guarantor  or  surety.  Dower  Rights — Life  estate  in  one-third  realty.  Distribu- 
tive Share  of  Husband's  Personalty — If  there  be  children,  widow  gets  one-third;  if  no  children,  one- 
half.     If  no  children  or  descendants,  widow  takes  all. 

Chattel  Mortgages.  Void  as  to  creditors,  purchasers  and  mortgagees  without  notice. 
Must  be  recorded  with  the  county  clerk,  where  the  property  is  located. 

LAWS  OF  NEW  MEXICO. 

Statute  of  Limitations.  Accounts — 4  years.  Commercial  Paper — 6  years.  Judgments — 
7  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles,  and  if  not  owner  of  homestead,  $500 
additional.     Homestead — To  the  value  of  $1000.     Wages — 3  months. 

Statute  of  Frauds.  All  contracts  for  the  sale  of  goods,  wares  and  merchandise  must  be  in 
writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  double  the  amount  of  excess  interest.     A  fine  is  also  imposed. 

r<^EGOTiABLE  INSTRUMENTS  Law.    Adopted  1907. 

Rights  of  Married  Women.  She  has  full  trading  rights,  except  when  dealing  with  real 
estate*  then  her  husband  must  join  in  the  transaction.     Dower  Rights — By  statute  the  widow  gets 


APPENDIX.  189 

one-lialf  of  community  property.     She  gets  one-iourth  of  the  remainder  of  the  community  property 
and  husband's  separate  estate.     If  no  issue  she  gets  ail. 

Chattel  Mortgages.  Void  unless  filed  and  recorded  with  the  recorder  where  property  is 
located. 

LAWS  OF  NEW  YORK. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper— 6  years;  if  under  seal, 
20  years.  Judgments — Courts  of  record,  20  years;  inferior  courts,  6  years,  but  if  transcripted,  20 
years. 

Executions.     No  provision  for  stay  of  execution. 

Exemptions.  Personal  Property — Specified  articles,  and  $250  additional  to  head  of  family. 
No  exemption  for  purchase  price.  Homestead — $1000  provided  that  the  deed  or  notice  is  properly 
recorded.  Wages — -For  60  days,  provided  they  are  necessary  for  support  of  family.  $12  per 
week  only  exempt  where  judgment  is  for  necessaries  or  domestic's  wages  or  employee's  salary. 

Statute  op  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  both  debt  and  interest.  In  case  of  banl<s,  loss  of  interest  only,  unless  already  paid, 
when  twice  the  amount  of  interest  is  forfeited.     Also  misdemeanor. 

Negotiable  Instruments  Law.     Adopted  in  1897  and  1898. 

Rights  op  Married  Women.  Same  as  a  femme  sole.  Dower — Life  interest  in  one-third 
realty.  Distributive  Share  of  Husband's  Personalty — If  issue,  one-third  absolutely.  If  no  issue 
and  no  parent,  but  brother  or  sister,  nephew  or  niece,  she  gets  all  if  it  does  not  exceed  $2000.  If 
it  exceeds  $2000,  she  gets  one-half  and  $2000  additional.  If  no  issue  but  a  parent  she  gets  one- 
half.     If  no  issue,  parent,  brother  or  sister,  nephew  or  niece,  slie  gets  all. 

Chattel  Mortgages.  Void  unless  the  mortgage  or  a  true  copy  thereof  is  filed  with  the 
register  of  the  counties  of  Kings  and  New  York,  or  with  the  county  clerk  or  town  clerk  in  other 
counties.  If  the  mortgagor  is  a  resident,  must  be  filed  in  the  town  or  city  wliere  he  resides.  If  not 
a  resident,  in  the  town  or  city  wliere  the  property  is  at  the  time  of  the  mortgage. 

LAWS  OF  NORTH  CAROLINA. 

Statute  of  Limitations.  Accounts — 3  years.  Commercial  Paper — If  under  seal,  10  years, 
otherwise  3  years.     Judgments — Court  of  record,  10  years;  justice  of  peace,  7  years. 

Execution.  Court  of  record,  no  stay;  justice  of  peace,  a  stay  is  granted  as  follows:  If  amount 
be  $25  or  under,  1  month;  $25  to  $50,  3  months;  $50  to  $100,  4  months;  over  $100,  6  months. 

Exemptions.  Personal  Property — Specified  articles  not  to  exceed  in  value  $500.  Home- 
stead— To  the  value  of  $1000.     Wages — 60  days  if  necessary  for  support  of  family. 

Statute  op  Frauds.     Not  in  force  except  as  to  the  sale  of  liquor  to  the  amount  of  $10. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  C/swrj/ works  a  for- 
feiture of  interest.     If  interest  has  been  paid  double  amount  paid  may  be  recovered. 

Negotiable  Instruments  Law.     Adopted  in  1899. 

Rights  op  Married  Women.  She  has  full  trading  rights,  if  she  registers  as  a  "free  trader" 
in  the  office  of  registrar  of  deeds.  Dower  Rights — Life  estate  in  one-third  of  the  realty.  Dis- 
tributive Share  of  Husband's  Personalty — If  not  more  than  two  children,  one-third  goes  to  widow. 
If  more  than  two  children  widow  gets  a  child's  share.  If  no  child  or  legal  representative,  widow 
gets  one-half. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  the  register  of  deeds  where  the  mortgagor  resides;  if  he  resides  out  of  the  state,  recording 
must  be  where  property  is  located. 

LAWS  OF  NORTH  DAKOTA. 

Statute  op  Limitation.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
Are  liens  for  10  years,  and  may  be  revived. 

Execution.     No  stay. 

Exemptions.  Personal  Property — $1000  if  head  of  family  resides  within  the  state.  Home- 
stead— In  city  or  town,  2  acres;  in  country,  160  acres;  in  each  case  value  must  not  exceed  $5000. 
Wages— ^o  provision. 

Statute  of  Frauds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  provisions  have  not  been  adopted. 

Interest.  Legal  rate  by  statute,  7  per  cent;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  interest.     If  interest  has  been  paid  double  amount  paid  may  be  recovered. 


190  APPEXDIX 

Negotiable  Ixstruments  Law.     Adopted  in  1899. 

iiicJHTs  OF  M.\RU1ED  WoMEN.  Same  :is  a  leiniue  sole.  Dower  Riglits — Dower  lias  been 
abolislie<l,  the  following  statutory  provision  being  substituted  therefor:  If  but  one  child  or  issue 
of  that  child,  widow  gets  one-half  real  and  personal  property;  if  more  than  one  cliild,  one-third; 
if  no  issue  and  estate  does  not  exceed  $500U  in  value  all  the  estate  goes  to  the  wife;  if  it  exceed 
$5000,  widow  gets  that  svmi  and  one-half  of  the  excess.  If  there  be  no  issue,  father,  mother, 
brother  or  sister,  widow  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
register  of  deeds  where  property  is  located. 

LAWS  OF  OHIO. 

Statute  of  Limitation.  Accounts — 6  years  from  date  of  each  item.  Commercial  Paper — 
15  years.     Jvdgments — May  be  kept  alive  indefinitely  by  issuing  execution  every  5  years. 

FvXECUTiON.  In  courts  of  record,  no  stay;  in  justice  of  peace  courts  a  stay  is  granted  as  follows: 
If  amount  be  S5,  60  days;  over  $5  and  under  $20,  90  days;  over  $20  and  under  $50,  150  days;  over 
$50,  240  days. 

Exemptions.  Personai  property — Specified  articles.  Homestead — To  the  value  of  $1000. 
Wages — Earnings  of  self  or  minor  children  for  three  months,  if  necessary  for  support  of  family. 

Statute  of  Frauds.  Not  in  force  as  to  goods,  wares  and  merchandise.  Other  essential 
features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  8  per  cent.  Usxiry  works  a  for- 
feiture of  excess  over  6  per  cent. 

Negotiable  Instruments  Law.     Adopted  in  1902. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
third  realty.  Distributive  Share  of  Husbar^d's  Personalty — If  no  children  or  their  legal  represen- 
tatives, wife  gets  all;  if  children  or  their  legal  representatives,  widow  takes  one-half  of  the  first 
$400,  and  one-third  of  the  remainder. 

Ch.\ttel  Mortg.ages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
township  recorder,  where  mortgagor  resides;  if  he  resides  out  of  the  state,  recording  must  be  where 
property  is  located. 

LAWS  OF  OKLAHOMA. 

Statute  of  Limitations.  Accou7its — 3  years.  Commercial  Paper — 5  years.  Judgments — 
May  be  kept  alive  indefinitely  by  issuing  execution  every  5  years. 

Execution,  In  courts  of  record,  no  stay;  in  justice  of  peace  court,  a  stay  is  granted  as  follows: 
If  amount  be  $20,  30  days;  between  $20  and  $50,  60  days;  between  $50  and  $100,  90  days;  more 
than  SlOO,  120  days. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — 160  acres  in  tlie  country 
or  1  acre  in  the  city.  Wages — "Current  wages  for  90  days"  to  head  of  family;  to  others,  "current 
wages." 

St.atute  of  Frauds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  over  $50 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent ;  by  contract,  10  per  cent.  Usury  works  a  for- 
feiture of  all  interest. 

Negotiable  Instruments  Law.  Has  not  been  adopted.  Act  somewhat  similar  passed  in 
1909. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Dower  has  beer, 
abolished,  the  following  statutory'  provision  being  svibstituted  tliorcfor:  If  tlicre  be  one  chiKl 
or  lawful  issue  of  one  child,  widow  takes  one-half  of  real  anil  personal  property;  if  more  than  one 
child  or  lawful  issue  of  one  or  more  ciiildren,  widow  gets  one-third  of  real  and  personal  propertj'; 
if  there  be  no  issue,  father,  mother,  brother  or  sister,  willow  takes  all  real  and  personal  property. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
register  of  deeds,  where  property  is  located. 

LAWS  OF  OREGON. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments— 
10  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  country  not  more  than 
160  acres  nor  less  than  20  acres;  or  in  city  not  more  than  1  block  nor  less  than  1  lot;  value  in  either 
case  not  to  exceed  $1500.  Wages — If  necessary  to  the  support  of  family  30  days,  not  to  exceed 
$75. 


APPENDIX.  191 

Statute  op  Frauds.  All  contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or 
over  must  be  in  writing. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  10  per  cent.  Usury  works  a  for- 
feiture of  principal  and  interest  to  be  paid  into  tlie  school  fund. 

Negotiable  Instruments  Law.     Adopted  in  1899. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
half  realty.  Distributive  Share  of  Husband's  Personalty — If  there  be  issue,  one-half;  if  no  issue, 
widow  takes  all. 

Chattel  Mortgages.  Void  as  against  subsequent  parties  without  notice.  Must  be  filed 
and  recorded  in  office  of  county  clerk  where  mortgagor  resides. 

LAWS  OF  PENNSYLVANIA. 

Statute  op  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
20  years;  must  be  revived  every  5  years,  otherwise  lien  on  realty  expires. 

Executions.  A  stay  of  execution  is  granted  as  follows:  Courts  of  record,  not  over  $200,  6 
months;  over  $200  and  less  than  $500,  9  months;  over  $500,  12  months.  Justice  of  peace  courts, 
over  $5.33  and  not  exceeding  $20,  3  months;  over  $20  and  not  exceeding  $(30,  6  months;  over  $60 
and  not  exceeding  $300,  9  months.     Judgments  obtained  for  manual  labor  excepted. 

Exemptions.  Personal  Property — $300,  exclusive  of  all  wearing  apparel  and  may  include 
realty.     Homestead — No  provision.     Wages — -All. 

Statute  op  Frauds.  Not  in  force  as  to  goods,  wares  and  merchandise.  Other  essential 
features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  lor- 
feiture  of  excess  interest. 

Negotiable  Instruments  Law.     Adopted  in  1901. 

Rights  op  Married  Women.  Same  as  a  femme  sole,  except  that  she  cannot  become  an 
accommodation  indorser,  maker,  guarantor,  or  surety  for  another  or  convey  or  mortgage  her  realty 
unless  her  husband  joins  in  the  instrument.  Dower — Regulated  by  the  following  statute:  If 
there  be  issue  she  gets  one-third  for  life.  If  no  issue,  she  gets  real  and  personal  estate  or  both 
up  to  $5000  in  the  aggregate,  plus  her  exemption.  If  over  $5000,  then  such  sums  and  one-half 
of  remaining  real  estate  for  life  and  one-half  of  remaining  personal  estate  absolutely. 

Chattel  Mortgages.  Void  unless  recorded  with  the  public  recorder  or  register  in  the  county 
where  the  chattels  actually  are  at  the  time  of  the  execution  of  the  mortgage. 

LAWS  OF  RHODE  ISLAND. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
20  years. 

Execution.     A  stay  will  be  granted  for  a  reasonable  time  if  good  cause  be  shown. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — None.  Wages — $10;  also 
salary  of  wife  and  minor  children. 

Statute  op  Frauds.  Not  in  force  as  to  goods,  wares  and  merchandise.  Other  essential 
provisions  adopted. 

Interest.     Legal  rate  by  statute,  6  per  cent;  by  contract,  no  limit  u;)  to  30  per  cent. 

Negotiable  Instruments  Law.     Adopted  in  1889. 

Rights  op  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
third  realty.  Distributive  Share  of  Husband's  Personalty — If  without  issue,  widow  gets  one-half; 
if  with  issue,  one-third. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  the  town  clerk  where  mortgagor  resides  or  if  non-resident,  where  property  is  located. 

LAWS  OF  SOUTH  CAROLINA. 

Statute  of  Limitations.  Accounts— Q  years.  Commercial  Paper — 6  years.  Judgments — 
20  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — $^00.  Homestead — To  the  value  of  $1000.  Wages — GO 
days  if  necessary  to  support  family. 

Statute  of  Frattds.  Contr.TCts  for  the  sale  of  good.s,  wares  and  rnerchandi.sp  for  $.50  or  over 
must  be  in  writing. 

Interest.     Legal  rate  by  statute,  7  per  cent;  by  contract,  8  per  cent.     Usury  works  a  for- 


192  Al^jHEMJlX. 

feiturc  of  interest ;  if  paid,  double  amouui  paid  as  interest  may  be  recovered  by  separate  action 
or  by  way  of  counterclaim. 

Negotiable  Insthuments  Law.     Has  not  been  adopted. 

l{iGHTS  OF  Makried  Wome.n.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one- 
tliird  realty.  Distributive  6liare  of  Husband's  Personalty — If  there  be  one  or  more  children,  widow 
gets  one-third;  if  no  issue,  widow  gets  one-half.  If  no  issue,  father,  mother,  brother  or  sister, 
widow  takes  two-thirds. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  tlie  register  of  mesne  conveyances  wliere  mortgagor  resides;  if  he  resides  out  of  the  state  the 
recording  must  be  where  the  property  is  located. 

LAWS  OF  SOUTH  DAKOTA. 

St.\.tute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
20  years. 

Execution.     Courts  of  record,  discretion  of  judge;  justice  of  peace  courts,  no  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  country,  160  acres  or 
in  city  1  acre;  in  either  case  value  not  to  exceed  SoOUO.  Wages — 60  days  if  necessary  for  the  sup- 
port of  family. 

ST.^,TUTE  OF  Frauds.  Contract  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  7  per  cent;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  interest.     It  is  also  a  misdemeanor. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  M.\rried  Women.  Same  as  a  femme  sole.  Dower  Rights — Dower  has  been 
abolisher"  the  following  statutorj'  provision  being  substituted  therefor:  If  there  be  one  child  or 
issue  of  one  ciiild,  widow  gets  one-half  of  both  realty  and  personalty.  If  more  than  one  child,  or 
issue  of  one  or  more,  widow  gets  one-third.  If  no  issue,  one-half  to  widow.  If  no  issue,  father, 
motiier,  brother  or  sister,  widow  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  \^nth 
the  register  of  deeds  where  property  is  located. 

LAWS  OF  TENNESSEE. 

Statute  of  Li.mitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
10  years. 

Execution.  In  courts  of  record,  a  stay  may  be  granted  in  the  discretion  of  the  court;  in 
justice  of  the  peace  courts,  a  stay  of  8  months  is  allowed. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $1000. 
Wages — $30  for  all  except  nonresidents. 

Statute  of  Frauds.  Not  in  force  as  to  sales  of  goods,  wares,  and  merchandise.  Other 
essential  features  adopted.     Retention  of  title  in  conditional  sales  must  be  in  writing. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  excess  interest. 

Negotiable  Instruments  Law.     .\dopted  in  1899. 

Rights  of  Married  Women.  Full  .trading  rights.  Duwcr  Right — Life  estate  in  one- 
third  realty.  Distributive  Share  of  Husbanfl's  Personalty — If  there  be  children  or  the  descendants 
of  ciiildren  the  widow  takes  a  ciiild's  .share.  If  tliere  are  no  childron  nor  tlic  descendants  of  chil- 
dren, the  widow  takes  all. 

Chattel  Mortgages.  Void  as  against  subsequent  parties  without  notice.  Must  be  regis- 
t€re<l  with  register  of  deeds. 

LAWS  OF  TEXAS. 

Statute  of  Limit.\tions.  Accounts — 2  years  from  the  date  of  each  item.  Commercial 
Paper — 4  years.     Judgments — 10  years. 

Execution.     Courts  of  record,  no  stay;  justice  of  peace  courts,  3  months. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  country,  200  acres  and 
improvements;  in  city,  $5000  lot  regardless  of  value  of  improvements.  TT'o^es — All  current  wages 
for  personal  services. 

Statute  of  FRAur)i=».  No  provision  as  to  contracts  for  the  sale  of  goods,  wares  and  merchan- 
di.'io.     Other  essential  features  nave  been  adopted. 

INTEREST.  Legal  rate,  by  statute,  6  per  cent:  by  contract,  10  ppr  cpnt.  Usury  works  a  for- 
feiture of  all  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 


AFfENDlX.  193 

Rights  of  Married  Women.  She  may  be  a  merchant,  but  must  use  her  separate  property. 
She  cannot  carry  on  a  partnership  and  cannot  buy  on  credit.  Her  profits  become  liable  for  her 
husband's  debts.  Dower — Dower  has  been  abolished,  the  following  statutory  provision  being 
substituted  therefor:  If  there  be  descendants,  she  gets  life  estate  in  one-third.  If  no  descend- 
ants, she  gets  one-half  absolutely.  If  no  descendants,  or  parents  or  brotlier  or  sister,  she  gets  all. 
Of  community  property  she  gets  one-half  absolutely,  if  there  be  descendants;  if  no  descendants, 
she  gets  all.  Distributive  Share  of  Husband's  Personalty — If  there  be  descendants  she  gets  one- 
third  absolutely.     If  no  descendants,  she  gets  all. 

Chattel  Mortgages.  Void  as  to  tTiird  parties  unless  filed  with  the  recorder  where  the 
mortgagor  resides.     If  nonresident,  where  the  property  is  located. 

LAWS  OF  UTAH. 

Statute  of  Limitations.  Accounts — 4  years.  Commercial  Paper — 6  years.  Judgments — 
8  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $1500, 
also  $500  for  wife  and  $250  for  each  member  of  the  family.  Wages — One-half  wages  for  30  days, 
said  sum  not  to  be  less  than  $30. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $200  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.     Legal  rate  by  statute,  8  per  cent;  by  contract,  no  limit. 

Negotiable  Instruments  Law.     Adopted  1899. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Dower  has  been 
abolished,  the  following  statutory  provision  being  substituted  therefor:  Widow  entitled  to  one- 
third  in  value  of  all  the  legal  and  equitable  estates  in  real  property.  The  value  of  such  part  of  the 
homestead  as  may  be  set  aside  to  the  widow  shall  be  deducted  from  her  distributive  share.  Dis- 
tributive Share  of  Husband's  Personalty — If  one  child  or  the  issue  of  one  child,  widow  gets  one-half; 
if  more  than  one  child,  or  the  issue  of  such,  widow  gets  one-third. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  filed  with 
recorder  where  property  is  situated  if  mortgagor  resides  out  of  state;  if  mortgagor  resides  in  tha 
state,  must  be  recorded  at  the  place  of  his  residence. 

LAWS  OF  VERMONT. 

Statute  of  Limitations.  Accounts — 6  years.  Commercial  Paper — 6  years.  Judgments — 
8  years. 

Execution.     No  stay. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  value  of  $500  with 
rents,  issue  and  products  thereof.     Wages — $10. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $40  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  for- 
feiture of  excess  interest. 

Negotiable  Instruments  Law.     Has  not  been  adopted. 

Rights  of  Married  Women.  She  may  become  a  sole  trader,  except  that  she  cannot  con- 
tract with  her  husband.  Dower  Rights — Life  estate  in  one-third  realty.  Distributive  Share  of 
HuMmnd's  Personalty — If  no  issue  and  personal  estate  does  not  exceed  $2000,  wife  takes  all.  If 
it  exceeds  $2000,  widow  takes  $2000  and  one-half  the  remainder.  If  the  deceased  lias  no  kindred 
who  by  law  may  inherit  the  estate,  the  surviving  wife  shall  be  entitled  to  the  whole  estate. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded 
with  town  or  city  clerk,  where  mortgagor  resides;  but  if  he  resides  out  of  the  state,  where  property 
is  located. 

LAWS  OF  VIRGINIA. 

Statute  of  LiMirATiONS.  Accounts — 3  years;  retail  store  accounts,  2  years.  Commercial 
Paper — 5  years;  under  seal,  10  years.     Judgments— 2Q  years. 

Execution.     In  courts  of  record,  no  stay;  in  justice  of  the  peace  courts,  30,  60  and  90  days. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $2000. 
Wages — Not  exceeding  $50  per  month. 

Statute  of  Frauds.    Not  in  force. 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  worki  a  for- 
feiture of  all  interest. 


194  APPENDIX. 

Negotiable  Instruments  Law.     Adopted  in  1898. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Life  estate  in  one-third 
realty.  Di.'itnbutive  Share  of  Husband's  Personalty — If  there  be  issue,  widow  gets  one-third;  if 
no  issue,  widow  gets  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded  in 
the  office  of  the  county  or  city  clerk,  where  mortgagor  resides  and  where  property  is  located. 

LAWS  OF  W^ASHINGTON. 

Statute  of  Limitations.  Accounts — 3  years.  Commercial  Paper — 6  years.  Judgments — 
6  years. 

lO.XECiTiON.  In  justice  of  the  peace  courts,  if  judgment  be  for  $25  or  less  a  stay  of  1  month  is 
granted;  over  §2.5,  2  months;  in  supreme  court,  if  under  $r>UO,  .'iO  days;  $500  to  $1,500,  60  days; 
over  §1500,  90  days;  in  other  courts  of  record,  if  under  $300,  2  months;  $300  to  $1000,  5  months; 
over  $1000,  4  months. 

KxE.MPTiONS.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $2000. 
IVa^es— $100.  if  necessary  for  the  support  of  family. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $.50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  G  per  cent;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  excess  interest;  also  forfeiture  of  twice  the  amount  of  interest  paid. 

Negotiable  Instruments  Law.     Adopted  in  1899. 

Rights  of  Married  Women.  Same  as  a  femme  sole;  but  she  cannot  become  a  partner  of  her 
husband.  Dower  Rights — Dower  has  been  abolished,  the  following  statutory  provision  being  sub- 
stituted therefor:  Wife  takes  her  share  of  community  property,  and  if  there  be  no  testamentary 
disposition  of  same  and  no  legitimate  issue  of  his,  her  or  their  bodies,  she  takes  all  the  community 
property.  If  there  be  one  child  or  lawful  issue  of  one  child,  widow  takes  one-half  of  all  other 
realty.  If  more  than  one  child  or  issue  of  same,  one-third.  If  no  issue  at  all,  one-half.  If  no 
issue,  father,  mother,  brother  or  sister,  widow  gets  all.  Distributive  Share  of  Husband's  Person- 
alty— If  issue,  one-half.     If  no  issue,  all. 

Chattel  Mortgages.  Void  as  to  subsequent  parties  without  notice.  Must  be  recorded  and 
filed  with  the  county  auditor  where  the  property  is  located. 

LAWS  OF  WEST  VIRGINIA. 

Statute  of  Limitations.  Accounts — 5  years.  Commercial  Paper — 10  years.  Judg- 
ments— May  be  kept  alive  indefinitely  by  issuing  execution. 

Execution.  No  stay  in  courts  of  record:  in  justice  of  peace,  a  stay  is  granted  as  follows:  If 
amount  be  $50,  2  months;  .$50  to  $100,  4  months;  over  $100,  6  months. 

Exemptions.  Personal  Property — $200  including  wages.  Homestead — To  the  value  of 
$1000. 

Statute  of  Frauds.     Not  in  force. 

Intere.st.  Legal  rate  by  statute,  6  per  cent;  by  contract,  6  per  cent.  Usury  works  a  for- 
feiture of  excess  interest. 

Negotiable  In.struments  Law.     Adopted  in  1908. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Doiver — Life  interest  in  one-third 
realty.  If  there  be  no  heirs,  widow  gets  all  the  realty.  Distributive  Share  of  Husband's  Person- 
alty— If  tliere  be  children,  she  gets  one-third;  if  no  children,  she  gets  all. 

Ch,\ttel  Mortgages.  Void  as  to  third  parties  unless  recorded  with  the  coimty  clerk  where 
the  property  is  located. 

LAWS  OF  WISCONSIN. 

Statute  of  Limitations.  Accounts — 6 years.  Commercial  Paper — lOyears.  Judgments — 
Courts  of  record,  20  years;  courts  not  of  record,  6  years. 

Execution.  Courts  of  record,  stay  on  appeal  by  giying  sureties;  in  jtistice  of  the  peace 
courts,  a  stay  is  granted  as  follows:  If  amount  be$10,  1  month;  if  above  $10and  not  exceeding 
$30,  2  months;  above  $30  and  not  exceeding  S50,  3  months;  above  $.50,  4  months. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — In  city  or  village,  one- 
fourth  acre  and  dwelling  house  thereon  and  its  appurtenances;  in  country,  40  acres  used  for  agri- 
cultural purpo.ses.  Wages — For  3  months  prior  to  execution,  not  to  exceed  average  of  $60 
per  montli. 

Statttte  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
raust  be  in  writing.     Other  essential  feat/ures  have  been  adopted. 


APPENDIX.  195 

Interest.  Legal  rate  by  statute,  6  per  cent;  by  contract,  10  per  cent.  Usury  works  a  for- 
feiture of  all  interest;  treble  amount  of  interest  paid  may  be  recovered. 

Negotiable  Instruments  Law.     Adopted  in  1899. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower — Life  interest  in  one-third 
realty.  If  no  lawful  issue  she  gets  all  absolutely.  Distributive  Share  of  Husband's  Personally — If 
issue,  she  gets  a  child's  share.     If  no  issue,  she  gets  all. 

Chattel  Mortgages.  Void  as  to  third  parties  unless  filed  with  the  town  clerk  where  mort- 
gagor resides;  if  nonresident,  where  property  is  located. 

LAWS  OF  WYOMING. 

Statute  of  Limitations.  Accounts — 8  years.  Commercial  Paper — 5  years.  Judgments — 
5  years. 

Execution.     In  court  of  record,  6  months  stay  is  granted;  in  justice  of  peace,  6  months. 

Exemptions.  Personal  Property — Specified  articles.  Homestead — To  the  value  of  $1500. 
Wages — Not  exceeding  $100. 

Statute  of  Frauds.  Contracts  for  the  sale  of  goods,  wares  and  merchandise  for  $50  or  over 
must  be  in  writing.     Other  essential  features  have  been  adopted. 

Interest.  Legal  rate  by  statute,  8  per  cent;  by  contract,  12  per  cent.  Usury  works  a  for- 
feiture of  interest. 

Negotiable  Instruments  Law.     Adopted  in  1905. 

Rights  of  Married  Women.  Same  as  a  femme  sole.  Dower  Rights — Dower  has  been 
abolished,  the  following  statutory  provision  being  substituted  therefor:  If  there  be  descendants, 
widow  gets  one-half  absolutely  of  both  realty  and  personalty.  If  no  descendants  and  estate  does 
not  exceed  $10,000  she  gets  all.     If  more  than  $10,000  she  gets  three-fourths. 

Chattel  Mortgages.  Void  as  to  third  parties  unless  filed  with  the  county  clerk  v^here 
property  is  located. 


Commercial   and    Industrial    Bookkeeping 

By  H.  M.   Roue,  Ph.D. 

Business  Bookkeeping  and   Practice 

By  W.   H.  Sadler  and   H.   M.   Roue,   Ph.D. 

These  are  the  famous  Budget  Systems  of  bookkeeping  that  have  completely 
changed  the  methods  of  teaching  this  important  branch  in  all  classes  of  schools. 
Theory  and  '■Practice  combined.  The  transactions  and  the  required  business  papers 
come  to  the  student's  attention  together.  Correct  business  practice,  customs  and 
methods  a  distincti've  feature. 

A  Series  of  Supplementary  Exercises  and  Drills  that  are  Invaluable 

cModern  systems  of  accounting  exemplified.  Pedagogical  treatment  sound, 
con'hincing  and  interesting. 

Each  book  and  accompanying  budgets  supply  five  complete  sets  from  which 
courses  ranging  from  four  months  to  two  years  may  be  selected. 

FULL  DESCRIPTIONS  IN  CATALOGUE.   BOOKLETS  AND  CIRCULARS 


International  Business  Practice 

By  H.  M.  Rowe,  Ph.D. 

Supplies  a  complete  course  in  business  and  office  practice.  The  transactions 
originate  between  students,  acting  as  individual  proprietors,  partners,  or  officers  of 
corporations.  A  bank,  wholesale,  commission  and  other  offices  are  required.  We 
supply  all  necessary  blanks  and  stationery. 

CORRESPONDENCE  SOLICITED 

'-pi  Tj        \/r       T>  r^  EDUCATIONAL    PUBLISHERS 

1  ne    O.    iVl.,    JtVOWe    \^0.  Baltimore  Maryland 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

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